Which trust would you recommend? Unit or discretionary?

I too read a book that was published in 2005 that said you can issue the income units to the higher income earner while the lower income earner with the capital units using the UT.

Terryw, the address you attached to that post isnt complete and includes the … in the address so could you please copy the full link because i am interested in that link. Thanks!

Hi Terry

I guess the problem I have is that tax law in this country now seems to be made on the run (TA's are effectively press releases)by some pinhead in Canberra who is using their value judgement.

It seems the best course of action is to always get a private binding ruling.  (for those that reckon its only an opportunity for the ATO to say no – I can only say this has not been my experience todate)

Regards

Tony

PS the PBR only covers the deductiblility of interest conflicting with the TA.  It doesn't cover the issue of distributing future capital gains to beneficiaries on lower MTR nor the catchall of Part IVa

You are at risk.. Parternships should be avoided as you are liable for what the other person does.

But, you should seek legal advice because there are claw back provisiosn under the bankruptcy act. So if something does happen and you are sued and end up bankrupted then any assets you had transferred to the trust will be at risk of being clawed back for creditors.

You should also never own assets in a trading trust as if the trust goes down the assets of the trust are at risk. Use a separate structure to own assets.

And be very wary of using 2 directors. Directors often go down with the ship so why risk both of you?

me again…been studying up on everything involved in running a company and the tax laws, all the ins and outs geez what a headache, I am wondering…With the set up of the PPSR, wouldn't it be easier to stay a Partnership and then have all our assetts registered under someone we trust as having a security interest over them, and then if anyone tried to sue or take assetts they could touch nothing as it is all already used as security elsewhere?

Any thoughts??

Hi

Best not to have a trading company act as trustee for a variety of reasons such as:

1. Same legal owner of all assets. So if one is sued there will be a burden of providing the assets are held on trust for the other. eg. If the company is sued then the company may need to prove that assets it holds in trust are that. If the company as trustee is sued then the company will have a right to be indemnified out of hte trust assets. If these are not enough to satisfy the debt then the company is personally liable for the short fall – so your business will be at risk.

2. Trading companys will often need to give charges over their assets. Eg. a lender lending to the company in its own right or as trustee will require a mortgage over property as well as a charge over all assets of the company – used to be called a fixed and floating charge. This will complicate things if the company has 2 roles.

Trusts are treaded as separate entities for tax purposes. So if the trust owns an asset it can claim depreciation. If the company owns it then it will claim the depreciation.

No.

This is because the partners of a partnership are jointly and severally liable for debts. Could be very dangerous.

Also if you have a charge over personal property then this itself is property. So if you were to get sued the creditor would stand in your shoes and have the benefit of the charge or mortgage over the asset.

There is also provision in the bankruptcy act to make any transaction designed to defeat creditors void. Also provisions regarding the transfer of assets to avoid creditors and/or undervalue. You would have CGT and stamp duty issues on the transfer and possibly more land tax if that person owns other assets. If that person is acting as trustee for you then you still own the assets and they would be available to creditors too.

Also consider what happens if that person:

divorces

dies

goes bankrupt

does a runner

or

misappropriates your funds.

Great advice, thankyou very much for your help.  So…from what I understand…there would be no way to set up something that could offset taxable income with the depreciating assets while at the same time protect all the assets from anyone who decides to sue / seize assets.

Or if there is a way I would sure like to hear about it!!!!!!!!

Also in regards to transferring assets into a company  or trust from a partnership, which are already depreciating, would I still have to pay stamp duty for these?  Plus I have recently taken over a new property with assets which I will declare this tax year as depreciating for the first time so if I were to add these for the first time to a trust or company I am assuming there would be no transfer / stamp duty??? Is this correct, plus the assets we lost in the flood, and no longer have, is there a way of still claiming what was owed even though we have closed the partnership and no longer have these assets to transfer to the new company / trust?

In regards to the company as trustee thing, I understand from what you have said that it would not effectively protect my assets held in the trust, and also that the trust will benefit only from the depreciation not the trading company as trustee, or is this only if the company is not a trustee that the trust is taxed independently? 

Sorry for all the questions but your help is great!!!

Can anyone give me any advice…from what I understand…there would be no way to set up something that could offset taxable income with the depreciating assets while at the same time protect all the assets from anyone who decides to sue / seize assets.

Or if there is a way I would sure like to hear about it!!!!!!!!

Also in regards to transferring assets into a company  or trust from a partnership, which are already depreciating, would I still have to pay stamp duty for these?  Plus I have recently taken over a new property with assets which I will declare this tax year as depreciating for the first time so if I were to add these for the first time to a trust or company I am assuming there would be no transfer / stamp duty??? Is this correct, plus the assets we lost in the flood, and no longer have, is there a way of still claiming what was owed even though we will have closed the partnership and no longer have these assets to transfer to the new company / trust?

In regards to having a company trading and as trustee for the trust which just holds the assets , is it true that this would not effectively protect my assets held in the trust, and also that the trust will benefit only from the depreciation not the trading company as trustee?

Any advice would be great as I need to do our tax return and would like to know before I add all our new assets from depreciation into the current partnership or quickly open a company and trust instead.

The position I would ultimately like to be in one where we can continue to offset our business income with our depreciating assets and also have the assets protected from being sued, we have not been sued or anything but the way some people have dealt with us we feel we need to protect ourselves.

Re: the current claw back laws, would this be a vulnerability only if we were sued before we changed from Partnership to Company or Trust??

This wold depend on which state the assets are in and what assets they are.

Still not sure what you mean about offsetting business income. But a trust earning $100,000 in income with a $20,000 deduction for depreciation will result in an income of $80,000. So instead of getting $100,000 income to distribute you have $80,000 hence you have still reduced your income of the business.

This would depend how you do it.

If you transfer for under market value or reduced consideration then the claimback period is 4.5 years from memory. But if you do it with the intention to put the assets out of the reach of creditors – such as for asset protection reasons – then there is no limit on the clawback period.

You also have to consider the practical side of things. Is a trustee in bankruptcy going to come after you for this at all in say 6 years for a transaction that was valued at say $50k?