Forum Replies Created
Hi Mark,
Your question raises many issues in tax law, let me try to answer them in the order asked:
quote:
1. How does money get from Company B back to Company A so it can buy more things for the trust? Obviously I’ve got access to all the bank accounts, but how is it done from an accounting point of view, as these are all supposed to be separate entities?Assume a profit of $100. When the funds are ‘distributed’ to Company B (“B”) at the end of the year, it is common practice for the funds not to be physically paid from Company T to Company B. What actually happens, is that for tax purposes Company T as trustee for the XYZ Trust (“XYZ”) ‘distributes’ the funds to B via a loan owing to B. i.e. the funds stay in the bank account of XYZ for the XYZ to use, however a loan to B of $100 is also shown in the balance sheet of XYZ.
Unfortunately as you have correctly said, they are separate entities and tax law (Division 7A of the Income Tax Assessment Act 1936) says that you must physically pay the loan to B within 1 year of the distribution [
].quote:
2. If you remove Company B, and make Company T the beneficiary instead (so it’s both trustee and beneficiary), doesn’t that negate the asset protection benefits of the trust? i.e. If Company T was sued when it was only the trustee, it has nothing to lose. If Company T was sued when it was both the trustee and the beneficiary, it has all my money to lose (seeing that I would distribute everything to the company to minimise tax)?Not 100% sure on this one but as far as I can see it, this may not be the best structure to use for the asset protection issues you have outlined above.
Might I suggest you use a company to operate your wrapping business (not for buy and hold strategies where there is capital growth potential). If your business is in a company, you limit tax on profit to 30%. You can have Trust B as the shareholder and as you want to take money out for yourself, the company declares a dividend to B who in turn distributes it to you. Of course you pay tax at marginal rates, but this is unavoidable unless you go for tax evasion (which I do not reccommend
). Still not great asset protection, but in general asset protection is used by professional staff (medical doctors, lawyers) to reduce their personal exposure by not holding any assets in their own name.quote:
3. Can beneficiaries be added to a discretionary trust at any time, or must they all be specified when the trust is created?This depends on the specific trust deed but you can usually add additional beneficiaries through alteration of the deed. If the trust is a family trust, usually the trust automatically includes them (ie if you get married,have kids etc).
I suggest you sit down with a GOOD accountant and explain what you intend to do before you formally set up your structure to help you minimise tax[^]. Make sure the accountant fully understands Division 7A of the ITAA 1936 before you start planning.
Good Luck!
[
]Big Ads
Hey Adrian,
Interesting question with the structuring!
Your accountant may be right in suggesting you put the property in your own name at this stage of your wrapping career, assuming you do not earn over $50K a year. If you do earn more than $50K a year, your accountant is probably trying to sell you on the benefits of -tve gearing.
Costs of having a company structure is about $1k setup (which is deductible over 5 years) and an annual fee of $200 to ASIC (plus annual accounting fees of course!). The benefit is that you can defer the tax paid on profits until you pay yourself a dividend. The disadvantage is that you cant offset any losses against you own name to reduce tax, however they can be carried fwd indefinitely to offset against future profits in the company.
Have you asked your accountant about a family trust? Relatively cheap to set one up (about $500 max) and no annual fees. Trusts just allow you to minimise your tax and are great if you have a partner and/or family [
]. Trusts have the same issues as companies in that you have to carry fwd the losses and can’t offset them in your personal name.There are advantages to both structures which would take a long time to explain on this forum, but if you are looking to buy and hold a positive cashflow property that will appreciate in value, the best structure would be a family trust as it also provides you with more advantages (like 50% discount on capital gains) when you come to sell.
Hope this helps a little. Let me know if you want some further clarification.
Cheers
[
]Big Ads
Hey ZS,
Yes I am in WA, but no, I havn’t done any WRAPS yet.
Not sure about the public perception of WRAPS as yet. I think it may be different in WA as we are limited to the lease option method of sale vs the instalment contract if we don’t have a credit provider license (anybody with experience have any ideas on perception?).
I am trying to get some finance together at the moment before I can launch into my first one, but having done a fair bit of research on the subject, I am raring to give it a go!
Do you have any of the wrap packs?
Cheers,
[
]Big Ads
Hi ZS,
Your exact question was raised in the first WA Vendor Finance Association Meeting held last week.
The answer is ambiguous in that the govt department that issues the Credit Providers License advises that a license is only required if “you are carrying on a business”.[?] They give no real definition of carrying on a business, however I guess if you have formed a company, trust or put more than 1 WRAP together you would be probably seen as carrying on a business.
For your info, there were a couple of people at the meeting who had applied for, and and received the license who said that it was a process that takes about 2-3 months.
I guess the thing you have to remember is that you shouldn’t let a hurdle like this stand between you and your dreams!
Good Luck!
[
]Big Ads
].
). Still not great asset protection, but in general asset protection is used by professional staff (medical doctors, lawyers) to reduce their personal exposure by not holding any assets in their own name.
]
]. Trusts have the same issues as companies in that you have to carry fwd the losses and can’t offset them in your personal name.
