Trusts and taxes

Alistair and Kim were both in sales and earned over $60,000 a year each with bonuses. When Kim’s mother died, they used the inheritance money to buy two investment properties with only small amounts of borrowings. This added $12,000 to their net annual income.

Alistair and Kim decided to buy the properties in a family trust with their teenage children as well as themselves as beneficiaries. This meant that the trust would receive the income from the properties and Alistair and Kim could choose to pay education costs for the children from the trust. As distributions to the children, tax would only be paid at 33 cents in the dollar, rather than the 39 cents that was Alistair and Kim’s tax rate.