Insights from a Church Member:
As a Partner in financial advisory firm and a long-time member of NewHope Baptist Church, I’ve often reflected on how best to align my financial stewardship with my faith. One of the most effective strategies I’ve found is using discretionary trust distributions to tithe to NewHope.
This approach not only supports the church’s mission but also offers significant tax advantages especially for those in higher income brackets.
Why Use a Trust?
A discretionary trust allows the trustee to decide how income is distributed among beneficiaries. This flexibility is powerful. By including NewHope Baptist Church as a beneficiary in the annual trust distributions, I can direct a portion of the trust’s income to the church each year. Because NewHope is an income tax-exempt entity, the full amount of the distribution is received without tax erosion.
This means I can give in pre-tax dollars, maximising the impact of my gift. According to the Australian Taxation Office (ATO), gifts and donations to deductible gift recipients (DGRs) must be $2 or more and made voluntarily not as a testamentary gift or in the course of business. While NewHope Baptist Church is not a DGR for all purposes, it can claim franking credits from the ATO when distributions include franked income.
The Spiritual and Social Impact
NewHope’s ministries, from food relief and housing to mentoring and prayer are deeply transformative. Their Community Care initiatives, such as the June Appeal and Christmas is Giving campaign, provide tangible support to vulnerable individuals. By giving through our family trust, I feel I’m not just donating I’m investing in hope, dignity, and spiritual growth.
ATO Guidance and Compliance
The ATO provides clear guidance on trust distributions to charities. If a discretionary trust distributes income to a tax-exempt entity like NewHope, that income is not taxed in the hands of the beneficiary. However, it’s essential to ensure the trust deed allows NewHope as a beneficiary.
A Practical Example: Tax Benefit for High Income Earners
The highest marginal tax rate in Australia is currently 47% including the Medicare levy. If I were to personally donate $10,000 to NewHope, this would cost $10,000 after tax (or approximately $19,000 pre-tax).
However, if I distribute $10,000 from our family discretionary trust directly to NewHope, the trust pays no tax on that income, and NewHope receives the full $10,000. This avoids the need to first pay tax on the income and then tithe post-tax dollars. It’s a more efficient way to give and it aligns with my values of generosity and stewardship.
The benefit to NewHope can be two-fold, the individual potentially increasing their tithe and NewHope benefiting from a refund of the franking tax credit if the trust income includes dividends.
Final Thoughts
Using trust distributions to tithe is not just a financial strategy, it’s a spiritual practice. It allows our family to give generously, wisely, and in a way that amplifies the reach of NewHope’s mission. I encourage others in similar financial positions to explore this path, consult with their advisors, and consider how their trust structures can be used to bless others.
This information is general advice only and is not personal advice.
Note from the Executive Pastor:
If you give via a Discretionary Trust, please ensure that you send your Trust Distribution Statements to the Executive Pastor (surette.southwood@newhope.net.au) to enable NewHope to claim the franking credits from the Australian Taxation Office. Thank you.