Are Family Trusts the Tax Haven They Used to Be?

Question


Hi Scott,

My accountant told me that a family trust is not the ‘tax haven’ it used to be a few years ago. Is that true? We were thinking about establishing one for our family (we have two kids — one aged four and the other two months). Our combined income is $190,000 before tax.

Cheers,

Keval

Scott's Answer


Hi Keval,

Your accountant is my kind of guy (or gal).

Family trusts can be tax havens if you have adult kids (at university, say). You can distribute income from the trust and take advantage of their tax-free threshold (the first $18,200 earned is tax free).

But your kids are minors. And the Government doesn’t like rich people using their children (under 18) as a tax dodge, so it whacks them with a tax rate as high as 66 per cent on unearned income!

I’d suggest building up your Mojo, maxing out your pre-tax contributions, knocking out your mortgage, then investing in shares — possibly through a trust. One day your kids will be adults!

Any accountant who talks a client out of giving him more fees deserves a pat on the back. He’s looking out for your best interests.

Scott