I am not sure if they are the same thing, but I am wondering if it would be more beneficial to setup a COMPANY or a TRUST.
THE SITUATION :
2 people and myself have a company running, which has now moved into a positive cashflow position, and we are able to draw salaries from it. We are planning to take $200.00 each a week ( $600 per week combined ), but instead of drawing our salaries and being personally taxed on it, we are thinking of starting a new company, and purchasing Investment Properties with this company.Would it be more beneficial to setup a Trust or a Company or would it not make an ounce of difference? Can anyone forsee any problems transferring the $600.00 a week from one company to another? What ( if any ) kind of tax may be applied? What benefits would a Trust have over a company and vice versa.
Any advice/suggestions would be greatly appreciated.
All the best!
ME!SMooTH by name…
SMooTH by reputation…In addition to this dilemma, lies my personal dilemma.
At present the company structure would be setup so that we all have equal shares in the company.
The two other people, already have family trusts setup, and are planning to setup the company using their family trusts as apposed to their personal names.I, on the other hand, do not have a trust setup, and wondering if I should do this before we create this company, and setup the company using my trust as apposed to my personal name.
We are plannning to purchase quite a few Investment Properties over the next 5-10 years,
with an average of buying 2-4 properties a year.I do not have any family to include in my trust as yet, so as for the ability to distribute to low-income earners, etc, I do not have that option at this point in time. I predict that my current girlfriend will probably be a long term relationship, and suppose some day she may be an option to go into the trust. Is it a good idea to organise a trust now? Do I have to make any allowances so that I can include additional people ( girlfriend / children ) later down the line?
Any advice on this matter would be greatly appreciated.
Thanks!
ME!SMooTH by name…
SMooTH by reputation…A company can be a beneficiary, so you won’t pay over 30% tax rate after it’s gone into the trust (and got spent), then into the company (and got spent) and then taxed on whats left.
You say you are thinking of setting up a company to buy properties, but why??? You don’t get any discount to any capital gains you incur… Also how will you control you investment with the other two people (who will decide what to buy? Who will decide where to invest?, etc)??? What happens if you want to sell and the other two members don’t?? Who will run the investments?? (i.e. the person who decided what to pay for repairs and any improvements?, wether to drop or increase the rent, etc).
Perhaps you need to get professional advice (with a lawyer and an accountant!), as it sounds anything but smooth…
Rgds.
Lucifer_auI suggest you talk to a professional about this.
Your company will still be required to pay tax on the profit it makes, transferring it to another company and then investing it will not help you avoid this.
If you own shares in a company, it is better to own them through a trust as it is more flexible in regards to tax, and safer. What if you are sued for some reason? Your share would be safer if held like this.
If buying property, then using a trust would be a better idea than company. If a partnership, then a unit trust would be good, with your units owned by your discretionary trust. Then you could distribute the profits as you please – to yourself, or a company you control making a max of 30% tax.
Most trusts will be setup to include future parters, children, grandchildren, relatives etc so your girlfriend will be included as a beneficary already – if a defacto.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Smooth, I agree with what the others have said.
You should possibly consider setting up a trust for yourself – check out Trust Magic by Dale Gatherum-Goss http://www.gatherumgoss.com for a full understanding of how trusts work.
To have a partnership with your friends, I agree with Terry that a unit trust is probably better than a company. That structure provides for any income to ‘flow through’ the trust into your family trust (if you have one and it owns the units), and then you can distribute/spend and pay tax. With a company, it would have to pay tax before distributing to you guys – so less flexibility.
As to the money you guys could now ‘earn’ from your company, perhaps you should take it as salary, and then lend it to your family trust, who will then buy units in the Unit trust which will invest.
Really read up on how trusts work, and talk to accountants as to the best way to structure it – both for now and the future – especially if you’re going into partnership with others.
Cheers
MelHi All…
Thanks very much for all your advice.
I will be seeking professional advice on this matter, but, I thought I’d seek a direction as to what to seek professional advice on. ( And you all have given me that direction ).I appreciate the feedback.
Will keep you posted as things progress.
All the best.
ME!SMooTH by name…
SMooTH by reputation…
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