Unpaid present entitlements – time to move on?
The Commissioner’s ruling in TR 2010/13 is one of a number of reasons why there is a generally held view that consideration ought to be given to moving from a trust structure to a company structure.
The ruling has meant that it is becoming increasingly difficult for unpaid present entitlements and loan accounts to fulfill the role of working capital or pseudo equity in many trust structures.
Many advisers now consider that the ability of a trust to benefit from the 50% discount available under Division 115 and pass that benefit through to individuals must be weighed against the advantages of a corporate structure in respect of the tax rates applying to income and the ability of the corporate structure to retain after tax profits at a lower tax rate.
The tax rate of 30% on a gain is not greatly different to a discounted rate of 23.25%. Often wealth accumulation is now seen to be more desirable in a corporate entity than in a trust entity.