How to manage income from a family trust

In recent years, they have been commonly used to operate a business or to own investments. The major benefit is the flexibility to decide how income earned by the trust is distributed. When a business is operated through a trust, income can be received as a salary, from distributions of the net income of the trust or a combination of both.

Q I am over 65 and have a trust controlled by my partner. I am not employed by the trust but work in the trust and receive income as trust distributions. Would I qualify for making a concessional or a non-concessional super contribution?

A As you have chosen to receive your income from the trust as distributions, rather than recognising the work you are doing with a salary, you would not pass the work test.

To pass the work test, you must receive payment for at least 40 hours of work done in a continuous 30-day period in the financial year you make a super contribution.

One of the main benefits of a family trust is the discretion a trustee has to distribute its net income to any, all or none of the beneficiaries.

This means the income you are receiving from the trust is net business income, and not income from working. If you operated your business as a sole trader, or a partnership, you would pass the work test.

Q I have a super balance above $500,000, am 63 and salary sacrifice almost $50,000 as a super contribution. Can you explain the difference between concessional and non-concessional contributions?

A Concessional super contributions result in a tax deduction for the employer or the self-employed person making them. Non-concessional contributions are made from after-tax income, which means there has not been a tax deduction allowed.

As your salary sacrifice contributions are being claimed as a tax deduction by your employer they will be classed as concessional contributions. If you received the $50,000 as normal salary, at a tax rate of 30 per cent, you would be left with about $35,000 in after-tax income. If you contributed the $35,000 to a super fund it would be classed as a non-concessional contribution, and increase your tax-free super benefits in the fund.

Questions can be emailed to super@taxbiz.com.au. Max Newnham's book, Funding your Retirement: A survival Guide, is available in bookstores.