Hi all,
I currently operate a business and am trying to work out the best structure for asset protection and tax minimisation.
With some research, I have found that I can set up a Discretionary Trust to own the business assets and then the Trust enters into a license/service agreement with my Business Trading Entity.At the moment my business is owned by a Company, I hold an 80% shareholding and business partner holds 20%.
I understand the asset protection mechanism, but can anyone suggest a way to minimise tax? I was thinking having a Discretionary Trust as the Trading Entity, but how would I provide 20% profits to my business partner who is not a family/relative?
Help please!
Thanks!
One option is you could have a Unit Trust, where your business partner, or his/her related entity owns 20% of the units, and your discretionary trust (a new one) holds 80% of the units.
The Unit Trust distributes 80% of the profits to your discretionary trust, which then distributes the profits as it sees fit.
Do you own the business assets, or does your partner have a 20% share? If he/she does have a share, the asset holding entity may also need to be a unit trust.
Your accountant should be able to give you an understanding of the best structure for your entity and your business partner.
Be mindful though that transferring the assets from the existing company to a new trust may give rise to income tax (eg, CGT) and stamp duty.
To manage the income tax and/or stamp duty, consider setting up a holding company a unit trust and form a tax consolidated group. Once consolidated, any intra-group transactions (eg, transfer of assets) will be disregarded. There may also be some relief for stamp duty under the corporate restructure exemption – however, I think there will be difficulties in respect of assets transferred to a unit trust.
Eddie
[email protected]Thanks for your assistance!
Do you think it is worthwhile to have the service trust at all? Maybe I can just have a Unit Trust and then the unit holders are beneficiaries as a discretionary trust.
I own 80 % of the business assets and my business partner owns 20%.
Another question, how do you transfer an existing business into a Trust? A simple business Contract?
You dont you merely end the current entity i.e sole trader / partnership etc and then start the Trust and the new business.
Richard Taylor | Australia's leading private lender
what structure would you set up if you were share trading/investing? Would you set up a discretionary investment trust?
Probably a DFT.
Richard Taylor | Australia's leading private lender
Cruising666 wrote:Thanks for your assistance!Do you think it is worthwhile to have the service trust at all? Maybe I can just have a Unit Trust and then the unit holders are beneficiaries as a discretionary trust.
I own 80 % of the business assets and my business partner owns 20%.
You mean have the units owned by the discretionary trust. Thats a good idea. And don't forget the business should have a corporate trustee of the unit trust to limit liability.
But why not just have the shares of the trading company owned by your individual DT. What your partner does is up to her.
The business assets should be owned by a different entity, probably another DT so if the company goes down the assets are safe.
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
Cruising666 wrote:Another question, how do you transfer an existing business into a Trust? A simple business Contract?
Depends on how you are going to do it.
If you are keeping the company and transferring the shares to a DT or a UT then you will need to do the paperwork for this. ASIC will need to be notified and the relevant transfer form filled in. There may be CGT issues and stamp duty payable. Stamp duty on share transfers was supposed to be abolished on 01 Jan this year, but I think they have kept it going from memory.
If your company is selling the business to another entity, then you will be changing title. So you will need some sort of deed of sale. There is a standard contract of sale out there for the sale of a business (in NSW anyway). Again there may be stamp duty issues as goodwill is dutiable property. This won't be abolished till 2011.
There is lots to consider ifn doing all this such as existing leases, mortgages, charges etc over the existing company or its equipment. Licences etc.
Another option may be to sell up the new entity and gradually start the cross over by doing new business in this entity.
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
How would the Discretionary Trust delineate the 80/20 split ? With the DT, wouldn't the beneficiaries have to be family members only?
Thanks for your help Terry.
With a DT, the distributions are made at the total discretion of the trustee. Sure, you could organise that the trustee pay the profit distributions 80/20, but it would be much safer to have a Unit Trust where you own 80% of the units and your partner 20%.
The service trust can also be set up as a Unit Trust., so you can own the units in line with the ownership percentages. The original Service Trust was a Unit Trust.
What sort of assets are you looking to transfer out?
If they are dpreciable assets, they would generally be sold at written down value, and therefore wouldn't incur any tax issues. If it is land or buildings, there may be a CGT issue, as these would need to be sold at an arms length value.
Don’t forget if your overall net wealth (excluding super and your home) is under $6M you can get access to the small business concessions for CGT. If that is the case then there should be VERY little CGT on this restructure.
In relation to the actual holding entitles – I think it is best if you have a DT holding your shares. This way you do not have to run into issues as to who is going to be the appointor(s) of the (presumably) corporate trustee of the new DT.
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