Daaussie,

First I shall congratulate you on the thought of converting from sole trader to company. This is a great move to protect your hard earned assets.

I would also like to make some comments regarding your queries above.

1) Existing IP held personally

From a purely asset protection perspective it would be preferable to transfer the personally held IP to a structure that provides better protection – although you have decided to trade under a company going forward I assume you are still subject to warranties personally for work done whilst a sole trader, not to mention other non-business related claims against you personally.

I shall note that albeit traditionally family trusts offered better asset protection than super funds did (particularly for those with unhappy wifes) following recent cases (such as the Westgate case) discretionary trusts can no longer be said bullet-proof. In light of the concessionally taxed status of SMSFs, I would usually recommend to transfer passive assets such as IP to SMSFs where possible.

From a tax perspective, however, things are more complicated!

First, if the IP is currently being negatively geared, transferring it out means your personal tax return could no longer have that nice rental property deduction…Hopefully you can generate enough income in your family trust/super fund (such as dividend income) can use these negative gearing losses.

Second, an immediate capital gain tax (CGT) would likely to arise if you transfer the IP to your family trust. However you should be able to get a 50% discount on the tax if you have owned the IP for more than 12 months and 2 days. In contrast, no CGT would arise if you transfer the IP as an in-specie contribution to your SMSF. If the value of your IP is below $450K, you could transfer the IP to your SMSF in one go NOW and do not have to wait for 3 years (provided you have not done similiar transfers before). If however the value of your IP is above $450K but below $900K and PROVIDED that you trust your wife, you can transfer 50% of the IP to your wife, and then each of you make a $450K contribution to the SMSF (it has to be your wife for stamp duty reasons below). If the value of your IP is above $900K – there are still very good strategies around but I would not try to explain them here for fear of confusing everyone reading this post.

Third, an immediate stamp duty (at least for NSW and VIC) would arise if you transfer the IP to your family trust. No stamp duty if transfer to SMSF or your wife.

2) Unit trust vs company as trading entity

Talk to your accountant. The optimal structure will vary depending on the nature of your business and your other plans. One key difference is that trust beneficiaries can have access to the 50% CGT discount whilst company shareholders cannot access the CGT discount for the company's assets. This is of course not a problem if the trading entity is not going to hold assets that would appreciate in value but it is almost inevitable that as the business grows the trading entity will own something valuable

3) A SMSF

As a self-employed it makes great sense to think about retirement strategy as early as possible. SMSF is easy to establish and operate and I think most accounting firms would provide SMSF services. The establishment cost of a SMSF is generally $500 -$1000, whilst the ongoing costs would vary depending on the activities of the SMSF.