# Best structure to invest in shares?



## Fab

A simple questio what is the most cost efficient way of investing in share.
- Under an individual name
- Company name
- Family trust

And why ? (Example would be great). I understand that specially for individual investment it depends on indivual tax consideration.
Personnally my portfolio has increased enough over the last 3 years that tax is becoming an issue therefore probably pushing my gain to be tax at the highest tax bracket.

Cheers


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## astroboydivx

*Re: Best structure to invest in share*

Probably family trust.

As a company, you won't be able to take advantage of the halving of CGT.

As an individual, you can't pass distributions to the lowest income earner.

A family trust is probably your best bet because it provides asset protection as well as the ability to distribute profits at the discretion of the trustee (yourself or your company). However you can't negatively gear with it (the losses are trapped inside the trust, and offset against future profits).

My advice is to buy the book Trust Magic (available at www.trustmagic.com.au) by Dale GG and take things from there. It explains trusts very well, very easy to read.

I happen to have my shares in a hybrid discretionary trust, which is half unit trust and half family trust. That is, it has the ability to issue units (giving the beneficiary the right to a certain amount of the distribution) and also the ability to allocate the beneficiaries at the trustee's discretion. However hybrid trusts are under the radar of the ATO currently so I can't recommend them until this gets worked through.


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## tech/a

*Re: Best structure to invest in share*

Well You have a problem.
In that any profits taken now even to develope a new structure will be taxed at you marginal rate.
You originally bought the stock in your name---hence the problem.

I'm in the same position as youself.
Ive chosen to set up a Company,(Approx a grand) as its my intention to trade as well as hold longterm investments,increasing my initial capital to a point which even 10% gains would be substantial.
I have BOTH SMSF and the Company trading---so I can take advantage of leverage.

If your potential earnings are going to be above a wage then its time to re structure.

Have a chat to a *good *accountant.


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## nizar

*Re: Best structure to invest in share*

Has anybody here heard of Hybrid Trusts?

I was having a chat to an old friend telling him that imthinking of setting up a company (or a couple) for trading purposes, and he told me that if the ownership of these companies is structured as a hybrid trust with myself as sole beneficiary or anybody else, then tax benefits BIG TIME.

But still need to know exactly how it works, have asked a few friends and they will get back to me.

Any1 on here know about hybrid trusts?


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## astroboydivx

*Re: Best structure to invest in share*

Nizar

I take it you didn't read my post?


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## nizar

*Re: Best structure to invest in share*



astroboydivx said:


> Nizar
> 
> I take it you didn't read my post?




LOL!
Sorry no i didnt.

But i did now and it explains it well to some extent. Thanks for that.
Can you please elaborate on how to set it up and whats are the costs?

Thanks champ.


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## wayneL

Fab said:


> A simple questio what is the most cost efficient way of investing in share.
> - Under an individual name
> - Company name
> - Family trust
> 
> And why ? (Example would be great). I understand that specially for individual investment it depends on indivual tax consideration.
> Personnally my portfolio has increased enough over the last 3 years that tax is becoming an issue therefore probably pushing my gain to be tax at the highest tax bracket.
> 
> Cheers



Offshore company or trust? :batman:


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## motorway

*Re: Best structure to invest in share*

I am looking into structures as well

My understanding is a Hybrid trust allows one to borrow  to buy units
hence a tax effective way to get $$ into the trust and then operate as discretionary... units can be capital or income..

A Hybrid trust seems to provide a solution for those who have built up assets in another vehicle .. IE negatively gear against existing assets to buy units in Hybrid trust... A simpler discretionary trust can not do this..

comments ?

Also a company can be trustee and /or beneficiary
So The trust is the overarching vehicle ..

Ok My investigations are PRELIMINARY

So I might have this completely wrong

As tech says 
A good accountant needed

But If anyone has comments I would be interested

motorway




astroboydivx said:


> Probably family trust.
> 
> As a company, you won't be able to take advantage of the halving of CGT.
> 
> As an individual, you can't pass distributions to the lowest income earner.
> 
> A family trust is probably your best bet because it provides asset protection as well as the ability to distribute profits at the discretion of the trustee (yourself or your company). However you can't negatively gear with it (the losses are trapped inside the trust, and offset against future profits).
> 
> My advice is to buy the book Trust Magic (available at www.trustmagic.com.au) by Dale GG and take things from there. It explains trusts very well, very easy to read.
> 
> I happen to have my shares in a hybrid discretionary trust, which is half unit trust and half family trust. That is, it has the ability to issue units (giving the beneficiary the right to a certain amount of the distribution) and also the ability to allocate the beneficiaries at the trustee's discretion. However hybrid trusts are under the radar of the ATO currently so I can't recommend them until this gets worked through.


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## theasxgorilla

wayneL said:


> Offshore company or trust? :batman:




Yes...of course it's difficult to get the money back into your country of domicile.  But there are ways to get access to the money.  Some would argue that these structures and methods are underhanded and not for the average ASF member.  Then some might also argue that a top marginal tax rate of 46.5% (or indeed 55% where I now live) is a form of legislated highway robbery.

Get creative, go offshore.


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## wayneL

theasxgorilla said:


> Yes...of course it's difficult to get the money back into your country of domicile.  But there are ways to get access to the money.  Some would argue that these structures and methods are underhanded and not for the average ASF member.  Then some might also argue that a top marginal tax rate of 46.5% (or indeed 55% where I now live) is a form of legislated highway robbery.
> 
> Get creative, go offshore.



It's not that it necessarily difficult, just that the repatriated cash become taxable. But as you are are aware there are areas of grey where this may not necessarily be so.

A lot depends on your country of residence though I believe. 

If you're a Yank for e.g., they want tax from worldwide income.


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## Mousie

wayneL said:


> A lot depends on your country of residence though I believe.
> 
> If you're a Yank for e.g., they want tax from worldwide income.




So it would be if you're an Aussie as well.


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## wayneL

Mousie said:


> So it would be if you're an Aussie as well.



I believe it is only if there is no taxation treaty with the country where income is earned.

I am pleading the fifth on my own affairs, but I know several folks with offshore arrangements. Companies do it too e.g. James Hardy.


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## Mousie

wayneL said:


> I believe it is only if there is no taxation treaty with the country where income is earned.




Yup, the Aussie govt play by the same rules as the US', AFAIK...but if I set up an offshore company investing in Aussie securities, my income's earned in Oz, and therefore I'd be taxed by the Aussie govt, is that right?



> I am pleading the fifth on my own affairs, but I know several folks with offshore arrangements. Companies do it too e.g. James Hardy.




I can only wish there's the equivalent of the fifth here. Any ideas how JHX does it?


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## theasxgorilla

Mousie said:


> Yup, the Aussie govt play by the same rules as the US', AFAIK...but if I set up an offshore company investing in Aussie securities, my income's earned in Oz, and therefore I'd be taxed by the Aussie govt, is that right?
> 
> 
> 
> I can only wish there's the equivalent of the fifth here. Any ideas how JHX does it?




JHX relocated to the Netherlands!  The IKEA company is also owned out of a series of difficult to determine structures there.

Re: your first question...if you buy and sell shares that is a capital gain.  For non-resident entities capital gains are not levied with capital gains tax.  Yes, that is correct, you buy shares, they go up, you sell, NO tax liability in Australia.


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## Stinger

A hybrid trust is simply a trust which has some traits of a unit trust and some of a discretionary trust. With a hybrid trust you issue a set number of units to the beneficiaries and can then issue special icome units to other beneficiaries if you wish for them to receive some of the profits.

You issue the units for a nominal value eg 100 units for $1 each, otherwise stamp duty is too high.

The problem with a unit trust is that as there are fixed entitlements you must distribute to the unit holders each year a profit is made. THis is not tax effective should they alrwady be over the 30% marginal tax rate, as you are paying tax at a higher rate then if you used a company.

The best structure and one used most commonly in practice is to use a family trust and also have a company as a beneficiarry. You trade the shares in the trusts name. At year end the profits are distributed to the beneficiarries. You top any beneficiarries up to the top of the 30% tax bracket and if there is any remaining income you distribute it to the compnay. THis way you never pay more than 30% tax.

also for any beneficiarries under 18 you can distribute about $900 to them tax free.

As mentioned before if you are making loses or negatively gearing this is not the best structure. Talk to an accountant. They will be able to go over your structure and help you set it up and discuss ongoing management.

Someone mentioned offshore before... ATO is currently cracking down on it and you do still have to pay tax on any income received from these companies. There is a specific question in tax returns asking if you have and CFC income, which you then pay tax on.

There are ways around this, but very complex and not really worth it if only trying to save a few thousand $$$

Talk to Paul Hogan if still interested


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## wayneL

Stinger said:


> There are ways around this, but very complex and not really worth it if only trying to save a few thousand $$$
> 
> Talk to Paul Hogan if still interested




This is the rub. If it is "income" then yes, logically it will be taxable. If it is capital gain and not repatriated to Oz however...

The way CGT tax works in Oz is criminal IMO.

If I close out an investment expressly to roll into another investment, then there is CGT payable. 

That is stealing!

It should only be payable if an investment is liquidated to cash. IMO


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## theasxgorilla

The viability of offshore, IMO, depends upon a few things.  One of them being how much money are we talking about here?  Up to a point, there is no point...keep it in Australia, the overheads of setting up and maintaining it don't warrant the effort.  Beyond that point it MAY be worth looking into.  

The other thing to think about is, what do you plan to do with your profits???  If you believe you're going to use your profits to buy a house, car, boat, an annuity or anything else big and tangible, to be held and used *in Australia*, then what ever you do to repatriate the money back into Australia will most likely be complicated and probably on the virge of tax avoidance.  

If on the other hand you intend to use your profits for consumable things that the ATO will otherwise have no idea about, like flight tickets where your origin or destination was not Australia, expensive designer clothes that the ATO couldn't tell the difference from a $10 Phuket special, accomodation in a another country, entertainment in another country, property in a another country, a car in another country etc...then perhaps it's something for you.

I believe they call it, strategic tax planning.


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## yonnie

hello guys,

What if you keep borrowing money to buy shares and property?
You probably manage to get your profits down to zero, but also manage to get stinking rich. 
To get wealthy is hard to do with your own money and all the wealthy people in the world have done it with other peoples` money.
Borrow to the hilt, but always have a buffer for that rainy day.
No need to get any structure, just dont pay tax!

A good book on property/borrowing/saving on tax is Born Free, Taxed to Death by Rory J. O`Rourke


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## drillinto

Must read 

The 2006 Australian Share Ownership Study (May 2007)

http://www.exchange-handbook.co.uk/pdf/shareownership_study_2006_presentation_170507.pdf


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## Mouse

*Re: Best structure to invest in share*



tech/a said:


> Well You have a problem.
> In that any profits taken now even to develope a new structure will be taxed at you marginal rate.
> You originally bought the stock in your name---hence the problem.
> 
> I'm in the same position as youself.
> Ive chosen to set up a Company,(Approx a grand) as its my intention to trade as well as hold longterm investments,increasing my initial capital to a point which even 10% gains would be substantial.
> I have BOTH SMSF and the Company trading---so I can take advantage of leverage.
> 
> If your potential earnings are going to be above a wage then its time to re structure.
> 
> Have a chat to a *good *accountant.




I'm not an accountant (and make no claim of knowing the laws involved here) but I've been around accountants all my life so I would be asking ...  is it possible to sell the shares that you bought (as an individual) to your company at the price that you originally bought them, thereby making no profit on the sale.   The company would then make all the profit. 

If David Tweed (is that his name?) can buy shares cheaply legally then surely you could sell shares you own to your own company cheaply.

cheers
Mouse


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## BlingBling

*Re: Best structure to invest in share*



astroboydivx said:


> Probably family trust.
> 
> My advice is to buy the book Trust Magic (available at www.trustmagic.com.au) by Dale GG and take things from there. It explains trusts very well, very easy to read.




Trust Magic is an awesome book. Written so well and easy to understand.. Well worth the investment.


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## nizar

*Re: Best structure to invest in share*



Mouse said:


> I'm not an accountant (and make no claim of knowing the laws involved here) but I've been around accountants all my life so I would be asking ...  is it possible to sell the shares that you bought (as an individual) to your company at the price that you originally bought them, thereby making no profit on the sale.   The company would then make all the profit.
> 
> If David Tweed (is that his name?) can buy shares cheaply legally then surely you could sell shares you own to your own company cheaply.
> 
> cheers
> Mouse




A good question.
id like to hear other peoples thoughts about this, seems like a good idea.


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## clowboy

This will sound like a really silly question,  but can only faimily members be a part of a family trust?  To what level does it allow?  Just spouse/siblings or does it allow for parents /aunts etc?

The book quoted in this thread sounds like it is a go, but the problem most smucks like myself always find ourselves in is, at what point is it economical?

How much money do you need to have tied up in a trust to make it worthwhile?  Or more to the point how much profit do you need to be making to make it worthwhile?

I mean excluding capital (it irrelavant really) if you where making 10k a year in profits would this warrant setting up a trust (tax bracket at 30 or 42%)?

Or do you really need to be talking about 100k a year profits?

What about buying an investment property?  Would there be any benifiet of buying that in a trust?


Thanx


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## GreatPig

*Re: Best structure to invest in share*



			
				Mouse said:
			
		

> I'm not an accountant



Neither am I, but...



> is it possible to sell the shares that you bought (as an individual) to your company at the price that you originally bought them, thereby making no profit on the sale. The company would then make all the profit.



IMO, no. This would be considered a non-arm's-length transaction, and the ATO would deem them to have been sold at current market value (if they audited you of course).



> If David Tweed (is that his name?) can buy shares cheaply legally then surely you could sell shares you own to your own company cheaply.



I think that's different purely because that is an arm's-length transaction, provided you're not related to David Tweed.

And, again IMHO, a fool and his money deserve everything they get... 

Cheers,
GP


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## Mofra

clowboy said:


> This will sound like a really silly question,  but can only faimily members be a part of a family trust?  To what level does it allow?  Just spouse/siblings or does it allow for parents /aunts etc?



I'm not an accoutnant, but do read quite alot of financials for a living (including some _very_ interesting arrangments)

A discretionary trust (including family trusts I believe) can make distributions to any beneficiary - including holding companies. As alluded to in an earlier post, once you are at the 30% threashold it may be more advantageous for you (tax wise) to make any spare distributions to a holding company.

My gap in structered tax vehicle knowledge start about where the tax implications of a holding company retaining profits kicks in, as it is extremely easy to buy enough deductable debt in this country to avoid most tax problems anyway (dependant on your own investment aims of course).


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## GreatPig

clowboy said:
			
		

> can only faimily members be a part of a family trust?



Again I'm not an accountant, but I believe non-related people can use a trust together (eg. for a joint-venture or business) but it would not be a family trust.

The ATO have guidelines somewhere about who is considered family in relation to a family trust. What I'm not quite sure about though is when these apply. There are certain things a trust has problems with (relating to the trust loss provisions) where making a family trust election gets around the issues. Once an election is made, then there are strict rules about who is considered family for the purpose of distributions, but I'm not sure if it matters so much before that.

You'd need to ask an accountant, or research family trusts and family trust elections on the ATO website.

Cheers,
GP


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## nizar

If i trade under a company name, does the company qualify for the 50% CGT discount if shares are held for 12 months or more?

Or does this discount only apply to individuals?


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## stevo

nizar said:


> If i trade under a company name, does the company qualify for the 50% CGT discount if shares are held for 12 months or more?
> 
> Or does this discount only apply to individuals?




No!

I use a company for trading that is partly owned by my Family Trust. The trading company is also one of the beneficiaries of the Trust. Don't ask me why because I really can't remember why we set it up this way, although I guess it gives me a fair bit of flexibility.

stevo


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## Pager

I Operate a trading business through a family trust (futures and Options) so claim back GST on commissions etc, as far as im aware and I could well be wrong but it was my understanding that you cannot claim the 50% reduction for shares/futures/options positions held for more than 12 months.

I also have a share portfolio though but only have 8 or 9 transactions a year; this is held in my name through the trust.
So I can claim the 50% reduction for GCT.

Don’t ask me how it works , im not an Accountant , cost me about $2K to set up.

Cheers

Pager


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## kitehigh

I'm agree with Wayne and Co that the best structure is offshore.  

There are a number of countries that have no income tax and allow you to trade without worrying about captial gains tax.  You can set up a share trading and bank account and trade international markets.

  You have access to your funds anywhere in the world with a credit card that is linked to your bank account.  
And if you had a large amount of money that you eventually wanted to bring back into Australia I guess the best bet would be to go non-resident for a year and than wire the money back into Oz whilst you are a non-resident.  As this money is not earnt in Australia the tax office have no entitlement to take any tax from it.

The Australian tax system is not the same at the American system.  American citizens have to file a tax return regardless of where abouts in the world they live.  As an Australian citizens if you are a non-resident for tax purposes and don't earn any income in Australia you don't have to file a tax return.


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## johnw7000

I spoke to Jamie Gatherum-Goss a few weeks back and he said that you can set up a Company as Trustee to a trust plus stamp duty etc for approx $2500.
Jamie is the son of the guy that wrote the book 'Trust Magic'.
He's a really cool guy and very easy to talk to and will gladly answer any of your questions.
He told me that I could distribute up to $1600 per year to each child as beneficiaries within the trust tax free.  
The book 'Trust Magic' is available on loan from most libraries or costs just under $100 to buy.
Here's a link to the Gatherum-Goss website with all the contacts etc needed.

http://www.gatherumgoss.com/

One important thing to keep in mind is to not have anything or very little in your own name yet control it 100% through being an Appointee and beneficiary etc.

Great thread!
Cheers,
John


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## nizar

Kite and John, you have made some great points.
THanks for dropping by.


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