Hello,
I've been stressing over the problem of legal structures for ages. I can't seem to get any clear answers and it's holding me back from purchasing property.
I am wondering what legal structure to put my property/business in. I have asked the accountant but they said just to put it in my own name…I don't feel this is a good idea if my business was to be sued, etc.
Here is my situation:
I don't have any legal structures setup for anything. I have an internet business and I'm making about 350k a year (not a bad problem
). I want to buy residential property for long term buy and hold. I'm single so I can't offset things to my partner, etc.Ideally I want some protection for my assets without losing out on negative gearing benefits. I hope someone can give some advice, at least to give me enough of an idea on where I can start looking.
Thanks,
JoshJosh
If you are merely looking for Asset protection and are not too worried on covering any negative gearing shortfall then i personally would be looking at a Discretionary Trust structure.
Discretionary Trust
A discretionary trust is often referred to as a "Family Trust". It provides flexibility in sharing income within a family and can operate for up to 80 years.Income is distributed according to the trustees’ discretion, by allowing the income to be distributed to lower tax earners and relatives, including children (conditions apply and may not be entirely relevant to you at the moment).
Some advantages are low establishment costs and asset protection. Disadvantages include the fact that if there are losses, these will be quarantined within the trust and cannot be distributed to beneficiaries. Therefore a discretionary trust may not be suitable for investors who practice negative gearing – unless the trust receives income from other sources. Also, land tax thresholds are lower than for individuals.
Richard Taylor | Australia's leading private lender
That doesn't suit my needs at all.
I would aim to keep the business separate from the properties (in a different entity), just in case one goes down, the other venture would be "protected".
You should never run a business in your own name! A friend of mine was just sued for $800,000 because one of his employees committed a fraud – he had the business owned under his own name. Having a company will limit liability (in most cases). Get a new accountant.
If you are making that sort of money you would want to set up good structures to save tax too. Probably a discretionary trust in there someone.
Then for your property investments you should have another structure. If you have a business, then probably a discretionary trust is the way to go for the properties too (a different one) as you could divert income into the trust to offset any negative gearing losses.
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
Josh
Why does a Discretionary Trust not suit your needs at all.
I agree with Terry if you operate both your business and property acquisitions in differing discretionary trusts then one can offset the other. I would never operate a business in my own name.
Richard Taylor | Australia's leading private lender
Hi Richard,
I read your message: "If you are merely looking for Asset protection and are not too worried on covering any negative gearing shortfall"
I want to offset negative gearing.
I agree, I need a new accountant. This firm is new for me and hopeless! The $50 Indian guy I used last year was better
(The accountant is actually in the firm that Rick Otton uses, so I was hoping he did the hard work and found someone good)
BTW, hello Terry, I met you before. I'm a friend of Amit.
Hi Josh
Think I can remember you.
You can still use a Hybrid Trust to offset negative gearing, but will lose some flexibility.
But because you are self employed, you can use your business income to offset any loss in the trust – ie you can negative gear in the discretionary trust.
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
1) So I would have my business as a company. And a discretionary trust for properties.
I will then be able to protect myself & property from any business problems? And still be able to get negative gearing benefits?
(this situation seems perfect to me)2) if I put my business into a company structure it will get taxed at 30%. Does this mean I will get taxed again for income tax if I keep the money?
Hi Josh
You should probably have a company operate the business. If the business gets sued then you would usually be personally safe. eg. If one of those baldness cures you are selling could cause an allergic reation and kills someone – their family sues the seller = the company (not you).
The profits for the business would be held in the company, but the company could pay you a small wage for running it. Any profit would then accumulate and could be retained in the company or distributed to shareholders. Since the company has already paid tax (30%) on the profits it would not be fair if you are taxed again. So if the shareholder receives dividends and their income is low enough so that their tax rate is under 30%, they will get some extra tax back. if their income is higher, they may have to pay a bit more – but they wouldn't have to pay tax twice.
Now the shares for the company could also be owned by a discretionary trust. This way a lot of the profits could be distributed into the trust. From there it could be further distributed to a large number of beneficiaries (at the trustee's discretion). If you do not have a lot of family you could distribute it to you could always put it back into another company and cap the tax rate at 30%. You should not accumulate money in the trading company or it will be at risk if that company is sued.
For your property you could have it in another trust. It may be negative geared so a loss will accumulate. But if you set up correctly the profit from the business will be able to be distributed into this trust to offset the loss.
Doing all this will give you a lot of protection if sued and also should be effective in saving some tax too.
If you are making that sort of money you really need to sit down with a professional and seek some proper advice regarding set ups.
You could even look at setting up companies offshore too (for the business)
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
Thanks alot Terry. I really appreciate the information it has made things alot clearer to me.
BTW, are you a member of wealthy affiliate? I used to go there and it was great. I have outgrown it, but it let me hit some record days doing internet marketing.
Hi Josh,
At Forrester Korfiatis, we are passionate about our clients.
Our mission is to see you grow by providing the best solutions to meet the many opportunities and challenges facing you and your business.Our goal is to strive for excellence in the provision of professional services to businesses, investors, and superannuation trustees.
Your business is our business.
Give us a call, we can assist.
http://www.cbdaccounting.com.au
Great opening post Rodney.
Nice advert. Will you be contributing to the forum at all or just placing ad's.
Richard Taylor | Australia's leading private lender
). I want to buy residential property for long term buy and hold. I'm single so I can't offset things to my partner, etc.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
