Companys and Trusts. Tips for newbies

I would be wary of having more than 1 director of a company – there is no need and it creates unnecessary risk.

I think the best structure is a discretionary trust and having a company has trustee will help reduce the risk and to make it flexible. If you need a further income to assist borrowing then one of the siblings could go guarantor to the loan without taking the risk of being director – remember if something happens the director usually goes down with the company, and also guarantors to a lessor extent.

I am not sure on what you mean by an employee benefit fund – could you expand on this a bit more?

Companies are governed by the Corporations Act. It is a long act and there are heaps of rules surrounding companies so it is a big responsibility in being a director and running a company – even if you are the only share holders. The company is a separate legal entity and you must keep its assets separate and shouldn't use them as if they are your own or you could be breaching various director duties or other laws.  So there is much more complexity in running a company than buying something in your own name.

A trust is not a separate legal entity, but a kind of relationship. It is the trustee that is the legal entity and this can be a company or a person (or both). It is the trustee that owns the assets and enters into contracts etc. Trusts are governed by State laws and the common law. Trustees also have many dutites – to act in the best interest of the beneficiaries etc. If you have a company as trustee you will be governed by these laws and the corporations laws and so it is even more complex.

Then there is the complexity of Tax laws surrounding companies and trusts. These are especially complex and few accountants have good understandings.

The rules surrounding land tax are also complex and confusing and differ from state to state.

For tax purposes trusts are treated as separate entities as are companies, so if your trust has a loss you cannot use this to offset personal income as the two are unrelated. This can create problems if you are buying a negative geared property – you probably cannot save tax and so it will cost you more initially. Your trust may also need to make a family trust election to carry forward the loss and this may restrict the beneficiaries in the future.

Accounting fees will increase because of the complexity and you may need trust deeds updated every few years as well you may need legal advice every now and then to make sure something you want to do is permissible so it can be costly.

There are also clawback provisions and other provisions in the bankruptcy act which few understand or realise that this can invalidate many of the asset protection aspects promoted. 

If you guys invest with a company does that mean that you will have to charge GST on each deal??

GST doesn't really depend on the type of entity. A company or an individual can register for GST. Also, there is no GST on residential property – unless it is new.