Hi Guys. 6 months ago I purchased my first IP and I had no intention of ever starting a business, so I didn't bother setting up a trust structure.
I paid $70K deposit and the rest of my money goes into an offset account.
Now it looks like I may indeed be going into a business with a trusted family member. (High risk – Hospitality&Alcohol).
I realise its more than likely too late too switch my IP into a trust structure without paying another $20K in stamp duty.
My question – Is there a way to structure the new business so that the IP under my name has limited liability & protection from creditors, etc?
Short answer = nope.
If you are sued you could lose all your assets.
But to reduce the chances of you getting sued, you could set up the business in a limited liability company.
There may be a few things you could do to further encumber your property so that you have little equity. Would need careful planning and would be costly to set up, so you need to weigh up the costs v risks.
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
Terryw wrote:Short answer = nope.If you are sued you could lose all your assets.
But to reduce the chances of you getting sued, you could set up the business in a limited liability company.
There may be a few things you could do to further encumber your property so that you have little equity. Would need careful planning and would be costly to set up, so you need to weigh up the costs v risks.
Hi Terry, Once again thanks for your input.
If I setup the business and I am one of the directors, am I not still liable in the case that we are sued?
From the ATO website: A company provides some asset protection but directors can be legally liable for their actions and, in some cases, the debts of a company.
minds-eye wrote:Terryw wrote:Short answer = nope.If you are sued you could lose all your assets.
But to reduce the chances of you getting sued, you could set up the business in a limited liability company.
There may be a few things you could do to further encumber your property so that you have little equity. Would need careful planning and would be costly to set up, so you need to weigh up the costs v risks.
Hi Terry, Once again thanks for your input.
If I setup the business and I am one of the directors, am I not still liable in the case that we are sued?
From the ATO website: A company provides some asset protection but directors can be legally liable for their actions and, in some cases, the debts of a company.
Hi M
It is a well established legal principle that a company is a separate legal person different to its directors and shareholders. But because this has been open to abuse there are many laws in place which can make a director liable. But as long as you or the company are not doing anything illegal you should be right. One risky area is OHS – an employee injures themselves because you as director didn't fix a problem. Another is unpaid super or company tax etc.
Debts, you would generally not be liable for. But there are few lenders who will lend to a $2 company so what happens is they ask for a personal guarantee from the directors – and this means you are guaranteeing the company's debt so if it cannot pay you will have to or be sued and potentially lose your assets. A good reason to have one director only
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
Hi Terry,
Thanks for the information. I would love to have someone with your knowledge and experience to talk to here in Perth. But i'm getting the feeling you may seriously be the most qualified guy in Australia
Unless you know someone over here? I agree that having my business partner as the director might be the way to go – he owns no property!
Do you see any benefits in creating the business in a Hybrid Trust which in turn has a Pty Ltd trustee?
According to some sources, this may provide greater asset and income protection. But i don't quite see why!
And to make matters even more interesting, we would like to eventually have all future businesses inject profits/losses back to the same Pty Ltd for tax offsetting purposes.
For my own personal situation, I'm thinking about purchasing a PPOR in a trust and funelling all of my equity and cash into that.
This will provide some protection for my PPOR because it's in a trust. Does this sound right to you?
My IP can remain in my name, but highly geared and can be used as a tax deduction.
Any advice is appreciated, thanks buddy!
minds
If your friend is sole director is can be good asset protection for you is the business goes under, but risky for you as you won't have control of the company. He could transfer money or have the company enter into contracts etc
A hyrbid trust is one in which there are discretionary aspects and units. The deed could specify capital to the unit holders and income to the discretion of the trustee, for example. However this wouldn't provide any additional asset protection, but probably weaken it. Units are property.
I don't know what you mean by:
And to make matters even more interesting, we would like to eventually have all future businesses inject profits/losses back to the same Pty Ltd for tax offsetting purposes.
Trust can distribute income into a company, but not losses. If the company is trading it could retain income and be taxed on it.
Purchasing a PPOR in a trust is not generally done as you would lose the CGT exemption and be subject to land tax possibly – 2 taxes where there otherwise would be none. There are other ways to structure with some asset protection. And don't assume trust = asset protection because there are a number of ways this could be attacked, especially in the early years.
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
Terryw wrote:If your friend is sole director is can be good asset protection for you is the business goes under, but risky for you as you won't have control of the company. He could transfer money or have the company enter into contracts etcOk so once again I will need to weigh up the risks vs benefits. Unless there is a another way to protect my assets?
Terryw wrote:A hyrbid trust is one in which there are discretionary aspects and units. The deed could specify capital to the unit holders and income to the discretion of the trustee, for example. However this wouldn't provide any additional asset protection, but probably weaken it. Units are property.I don't know what you mean by:
And to make matters even more interesting, we would like to eventually have all future businesses inject profits/losses back to the same Pty Ltd for tax offsetting purposes.
Trust can distribute income into a company, but not losses. If the company is trading it could retain income and be taxed on it.
Doh, I think I have read in the past that trusts couldn't distribute losses. There are so many rules to remember!
I think having a parent company as a Pty Ltd with the different businesses operating as trading names would be the way to go to offset tax?
Terryw wrote:Purchasing a PPOR in a trust is not generally done as you would lose the CGT exemption and be subject to land tax possibly – 2 taxes where there otherwise would be none. There are other ways to structure with some asset protection. And don't assume trust = asset protection because there are a number of ways this could be attacked, especially in the early years.Can I coax you into sharing some of these magical ways of asset protect which you speak of?
Some other ways to protect assets are:
1/ Not to have any
2. encourage your spouse/parents etc to own instead of you
3. private loans and mortgages
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
Unless you know someone over here? 
You must be logged in to reply to this topic. If you don't have an account, you can register here.
