Briefly, the requirements are:
- There needs to be an obligation to pay maintenance for a child or children as a result of a family breakdown;
- There needs to be a transfer of property to the CMT as a result of a family breakdown;
- Income derived from the property is used for the benefit of a child or children affected by the family breakdown;
- Income is generated at arm’s length; and
- When the CMT is wound up, the property must pass to the child or children.
There are strict conditions that must be meet, with CMTs being particularly attractive for high net worth individuals.
The following is an example of the possible tax savings:
A – Without a Child Maintenance Trust
| Bill has a taxable income received from an existing family trust | $110,000 |
| On this income, he will have to pay tax of | $30,650.00 |
| Leaving net income after tax of | $79,350.00 |
| Bill has to pay $200 per week for each of his two children | $20,800.00 |
| Therefore, Bill’s disposable income after tax and maintenance is | $58,550.00 |
B – With a Child Maintenance Trust
| Bill is able to generate $20,800 of his income via a Child Maintenance Trust which pays the maintenance for the children. There should be no tax payable on this income. | |
| Bill’s taxable income is now | $ 89,200.00 |
| On this he will have to pay tax of | $ 22,488.00 |
| Therefore, Bill’s disposable income after tax and maintenance is | $66,712.00 |
| By using a CMT Bill has a gained tax saving of | $ 8,162.00 |
