Conduit principle Archives

Did anyone ever tell you that income splitting was a great idea? Read this before you believe them! There’s one bunch of attorneys who specialise in trusts that punt income splitting through a trust conduit as a great way to minimise tax, but they didn’t think it through properly. Here’s how it works – The trust earns taxable income on which it would be taxed at 45%, but no problem, flow the income through the trust using the conduit principle, and pay it to beneficiaries who are on a low tax rate. Magic! The beneficiaries will pay maybe 18%…

I had an interesting meeting recently, the results of which ran contrary to my normal views. But there were good reasons. These clients wanted to set up a property investment trust to produce income for their mother who has the money available to invest. They propose to shut the trust down and distribute the properties to the remaining beneficiaries (themselves) when she dies. Normally, my proposal would include the following – 1) The client would be the founder of the trust 2) There would be a…

Trusts are taxed at 45%, but that rarely matters because they should not earn taxable income, and, if they do, it should bypass the trust completely. Here’s how. Provided taxable income received by or accrued to a trust is distributed to a beneficiary prior to the trust’s tax year end (28 February), then it may flow through a pipe, or conduit, directly to the beneficiary without touching the trust at all. The nature of the income is unchanged. That is, a dividend remains a dividend, interest remains…

Conduit principle

The conduit principle and income splitting

When should you use the conduit principal to draw funds from your trust?

How income bypasses a trust using the conduit principle