Unlocking Trust Income: Motor Vehicle Deductions
Scenario Overview
Shawn Gili, who recently joined Investax for his tax affairs, submitted his tax information for the annual tax return. He runs his business through a Discretionary Trust. He is the sole director of the Trustee company. Shawn has not drawn a traditional wage throughout the year. Instead, he opts for regular profit distributions from the trust. For business purposes, Shawn uses a personal vehicle, which is registered in his name. He intends to claim motor vehicle expenses in his personal tax return for the business portion of the vehicle’s use. He kept a logbook as per his previous accountant’s advice.
Question:
Can A beneficiary of A Discretionary Trust claim a motor vehicle deduction for the business use of their vehicle, considering they only receive a trust distribution instead of a wage?
Answer: Deduction Eligibility for Trust Beneficiaries
Key Points:
- Discretionary Trust and Deductions: When a director doesn’t receive a salary or wage but instead gets distributions from a discretionary trust, claiming a deduction for personal expenses incurred, such as vehicle use, is not allowed.
- Reference to ATO Rulings: According to TD 2018/9, mere receipt of trust distributions doesn’t qualify an individual for interest deductions. This ruling extends to other expenses, including vehicle use, as indicated in paragraph 3.
- Potential Exceptions: The situation may differ if the client receives income through other means (e.g., salary or wages) for work performed for the trust.
After receiving our advice, Shawn realized that he had made errors in his tax returns for previous years. He has requested that we correct the mistake. Shawn, a law-abiding citizen, stated that he never intended to overclaim anything and does not want to have a poor audit record with the ATO. He simply made a mistake on his previous years’ returns based on prior tax advice. Navigating the complexities of tax deductions as a beneficiary of a Discretionary Trust can be challenging, especially when personal expenses like vehicle use are involved. If you find yourself in a similar situation, it is crucial to seek professional advice to ensure compliance and optimise your tax position.
At Investax, our team of tax experts specialises in addressing unique tax scenarios like Shawn’s. We are equipped to provide tailored advice that aligns with the latest tax regulations and rulings. If you are unsure about your eligibility for certain deductions or need guidance on managing your tax affairs through a Discretionary Trust, we invite you to reach out to us.
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