Discretionary Trusts distributing income to a SMSF and Tax

We have seen that it can be possible for a discretionary trust to distribute income to a SMSF if the SMSF is a beneficiary of the trust. See my legal tip
http://www.structuring.com.au/terry/super/can-a-discretionary-trust-distribute-income-to-a-smsf/

But just because it can be done doesn’t mean it should be done.

Any distribution from a related discretionary trust received by a SMSF will be classed as NALI or ‘Non Arms Length Income’.

NALI income will be taxed in a SMSF at the highest marginal tax rate.

Income from Fixed Trusts to a SMSF can be taxed at normal SMSF rates, 15% generally, but only where the income is genuine non-NALI income. For example a SMSF owning units in a Fixed Unit Trust which owns a factory. Genuine rent can flow through to the SMSF and be taxed at 15%. But if a discretionary trust distributes income to the unit trust this would flow through to the SMSF but be taxed at the top marginal tax rate.

The reasons for these laws are to stop people diverting income to SMSFs to save tax.

Discuss this at https://www.propertychat.com.au/community/threads/tax-tip-196-discretionary-trusts-distributing-income-to-a-smsf.38915/

Can a Discretionary Trust Distribute Income to a SMSF

A SMSF is a trust and a discretionary trust could potentially distribute to another trust. But, the Trustee of a Discretionary Trust can only distribute income to beneficiaries of that trust if the SMSF meets the definition of beneficiary as defined in the deed. If the SMSF is a beneficiary of the discretionary trust then it would be possible for it to receive income and/or capital from the discretionary trust.

BUT (and there is always a but) – just because it could be done doesn’t mean it should be done. See my tax tip for some of the tax consequences.

Discuss this topic at https://www.propertychat.com.au/community/threads/legal-tip-198-legal-tip-can-a-discretionary-trust-distribute-income-to-a-smsf.38916/

Being Both Executor of a Deceased Estate and Applying for Super Death Benefits

The executor of an estate has fiduciary duties to maximise the estate of the decreased. There can be conflicts of interest where someone is both executor and they apply, in their personal capacity, for the superannuation death benefits of the deceased, and this is because they are trying to avoid having the super death benefits paid into the estate, to benefit themselves.

Example

Mum and Dad divorce many years ago, son dies without a will. Son has about $40k in assets plus about $400,000 in super death benefits. Under the intestacy laws where a person dies without a spouse and children then both parents will benefit equally from the estate.

The issue here is that $40k is in the estate and will go to each parent in the share of $20k each.

If the superfund pays the death benefits to the estate the parents will get another $200,000 each.

If the superfund pays the mum, dad will miss out on $200k and similar if the superfund pays dad.

But, by mum applying for the benefit herself she is depriving the estate the money which means she is potentially breaching her duties as executor. As executor she should be asking the superfund to pay the money into the estate – it is her legal duty to do so.

 Moral of the story – seek legal advice before accepting the position of executor, especially if the deceased