Should a trust invest in CFDs?

A common question that many people ask is 'can my trust fund invest in CFDs?'. A common misconception amongst traders and investors is that trust accounts are treated in a different way by their CFD provider to individual and company accounts. Actually trust accounts are treated exactly the same as as every other account, the only real difference is the tax treatment of gains when the trustee decides to distribute them to the beneficiaries of the trust.

Traders and investors normally use trusts for investing in CFDs for the following reasons:

1. for members of their family or 'family group' to benefit from their trading profits;
2. tax benefits, providing the trust passes the family control test and makes distributions of trust profits only to beneficiaries of the trust who are members of the 'family group';
3. protecting the assets of the family group's from the liabilities of one or more of the members of the family (for example, in the event of a family member's bankruptcy or insolvency);
4. offer a mechanism to pass family assets on to future generations;
5. accessing favorable taxation treatment through the use of income tax "tax-free thresholds" of members of the family; and
6. avoiding problems like challenges to the will following the event of the death of a member of the family.

The Benefits utilizing a trust to make investments in CFDs
The primary advantage of a family trust is that the trustee is able to distribute income earned from investments made by the trust in any way they see fit, provided that the distributions are made to the beneficiaries of the trust. Trustees do not have to make trust distributions in any particular percentage or in the exact same proportion.

A trust is not required to pay income tax on earnings that are distributed to the beneficiaries, but does have to pay tax on undistributed earnings. Trustees can distribute trust income to several beneficiaries, and in proportions that benefit from those beneficiaries' personal tax rates. The beneficiaries then pay the tax on distributions made to them.

For instance, should an adult beneficiary of the trust only receive income from the trust and have the benefit of the tax-free threshold (currently $6,000) for the year, the trustee would be able to distribute a part of the family trust's income to this person. The result would be that the beneficiary will receive some income but may not need to pay tax if that amount is lower than $6,000. If ever the allocation to the beneficiary exceeds their tax-free threshold, the excess amount will be taxed at the beneficiary's personal tax rate.

Distributions received from a trust are not considered a special form of income, but instead form part of a beneficiary's assessable income. If the beneficiary receives income from other sources as well as distributions from the trust, all of their income is taxed together.

Should beneficiary's income exceed the tax-free threshold for a specific year, the rate of tax applied to the total amount of the excess income over the tax-free threshold may be less than that for other beneficiaries because of the total income that these other beneficiaries already receive.

Undistributed income is taxed in the hands of the trustee at the top marginal tax rate of 45% for the 2006/2007 year, giving a strong incentive for family trusts to completely allocate the trust's income before the end of every financial year.

The trustee must also take care in relation to which beneficiaries are chosen to be given distributions, as penalty tax rates can apply to distributions made to minors.

Earnings Distributions
One important aspect of a family trust that must be kept in mind is to whom the distributions are made.

First, all distributions require to be made only to people who are eligible under the terms of the trust deed to be beneficiaries of the trust.

Secondly, for trusts which have made a family trust election, the distributions may only be made to beneficiaries who are within 'the family group'. In relation to this the ATO states on its website:

"A consequence of making a family trust election is that any distributions (broadly defined) outside the family group of the family trust by the trust will be taxed at the top marginal rate applying to individuals plus the Medicare levy."

In other words, if a family trust makes a family trust election and then pays out to someone not a part of the family group, they will be taxed at the maximum rate possible.

Trust Buzz Words
Trust deed - This set out the terms and conditions under which a family trust is established and maintained. The trust is established by the trust's settlor and trustee (or trustees) signing the trust deed, and the settlor giving the trust property (the "settled sum") to the trustee.

The settler - The settlor's function is to give the assets to the trustee to hold for the benefit of the trust's beneficiaries on the terms and conditions set out in the trust deed. The settlor executes the trust deed and then will generally, have no further involvement in the trust.

The trustee - The trustee is accountable for the trust and its assets. The trustee has broad powers to execute the trust, and manage its assets. In a family trust, the trustees are likely to be Mum and Dad (or a company of which Mum and Dad are the shareholders and directors). Their children and any other dependants usually are listed as beneficiaries.

The trust information here ought to be considered general in nature, and in no way interpreted as legal advice.

Article Source: http://gamblingarticlessite.com

You can find out more about trading Conracts for differnece in your trust account by downloading our free CFD trading guide. Learn about CFDs today.

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