Mine Or Yours? Taking Cash Out of Your Business

The Tax Office is very interested in the way business owner’s access money from their businesses.  Trusts are currently in the spotlight.

A common approach utilised by many businesses with a discretionary trust is to distribute income to a company, pay tax at the corporate tax rate but leave the distribution in the trust for use by the business owners.  In effect, the distribution only occurs on paper.  Owners then use the distribution as working capital to fund growth, or in some cases, to fund personal assets.  The Tax Office intends to tax any of these distributions that remain within the trust (called unpaid present entitlements) under Division 7A.

This change essentially requires you to:

• Ensure that distributions to corporate beneficiaries are paid in full before the company’s lodgement day for the year in which the income is appointed; or
• Put a complying loan agreement in place between the company and trust before the company’s lodgement day for the year in which the income is appointed; or
• Look at restructuring to achieve the best result for you and your business.ath less than 20 employees, the Government run superannuation