# Trading as a Trust or Business Entity



## lbz321 (30 March 2012)

Hi all,

After the past couple of years in the 'School of Hard Knocks' learning to trade, I am confident I am now becoming consistently profitable and am looking to the future with regards to tax minimisation. 

I am curious as to the advantages and disadvantages of registering a business to trade under as opposed to just trading as an individual. Also the advantages and disadvantages of trading under a Trust structure. I primarily trade CFDs on US Stocks and also trade currencies with IG Markets currently making on average 20+ trades a month.

I also hope to diversify into real estate investments in the near future. As I don't have a great knowledge when it comes to tax I'm hoping other forum members might be able to advise me on what has worked for them.

If anyone knows of any good websites/other posts covering this subject I'd be very grateful.

Thanks guys,

Dave


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## McLovin (30 March 2012)

There is no benefit to trading as a business as opposed to a as an individual. A business is just a name attached to an individual. If you are looking at setting up a company to trade through then that is different. The company will pay flat 30% on all profits. So you need to work out what your marginal tax rate will be. For a trust structure it really depends on how many beneficiaries you have. Aside from shielding the assets in the trust one of the primary benefits is the ability to spread the tax liability across all the beneficiaries in the most tax efficient way. NB that all income must be distributed that the end of each year. Anything left in the trust will be taxed at the top marginal rate. This doesn't mean the money needs to be physically moved out of the trust (although it does in the case of a corporate beneficiary) just that it must be distributed for tax.

I would find a good accountant who can explain what the best structure is for you. Certainly they are the only one qualified to give you advice as opposed to opinions which is all you can get on here.


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## skc (30 March 2012)

There were some recent changes to distributing income to minors (from memory) that has made the discretionary trust less appealing than previous years.

Still not a bad structure if you have family / partner with low/little income who you trust (and hey trust you) in terms of money.

In fact I am pretty sure that's why it's called a "trust" structure .


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## Starcraftmazter (31 March 2012)

McLovin said:


> The company will pay flat 30% on all profits.




Wow I never thought of that. That's awesome! Especially seeing as how the government wants to lower it to 28% 

Do you have any idea of what sort of regulatory fees you'd have to pay to maintain a company for trading?

Edit: Wait a minute, won't you still have to pay tax on the money you would get from your company, meaning it would be taxed twice? Or does it work differently?


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## bellenuit (31 March 2012)

Starcraftmazter said:


> Edit: Wait a minute, won't you still have to pay tax on the money you would get from your company, meaning it would be taxed twice? Or does it work differently?




You can pay yourself franked dividends which will give you franking credits to offset the company tax paid, just like dividends you receive from other companies.

The regulatory fees are just over $200pa (ASIC fee) and the rest will be what your accountant charges to do your accounts and tax return. Mine charges $700, so all up the company costs me under $1000pa to run. However, my accounts are straightforward. Some can pay several thousand to the accountant.


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## Starcraftmazter (31 March 2012)

bellenuit said:


> You can pay yourself franked dividends which will give you franking credits to offset the company tax paid, just like dividends you receive from other companies.




But then that defeats the whole point of setting up a company to pay a lower tax rate on trading profits - doesn't it?

Or do you do it for other benefits like maybe buying equipment in the company name?


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## McLovin (31 March 2012)

Starcraftmazter said:


> But then that defeats the whole point of setting up a company to pay a lower tax rate on trading profits - doesn't it?
> 
> Or do you do it for other benefits like maybe buying equipment in the company name?




Are you asking whether the profits need to be distributed? Then the answer is no. Only once you take them out of the company will you have to pay personal income tax.

Of course you can also instead pay yourself a wage, which reduces the company profit and if your marginal rate is under 30% will reduce the total tax.


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## Starcraftmazter (31 March 2012)

McLovin said:


> Are you asking whether the profits need to be distributed? Then the answer is no. Only once you take them out of the company will you have to pay personal income tax.
> 
> Of course you can also instead pay yourself a wage, which reduces the company profit and if your marginal rate is under 30% will reduce the total tax.




Well I'm wondering if setting up a company to trade under can bring any tax advantages?

It seems like no matter what you do, you will still end up paying your marginal tax rate (that is in the end, everything will work out to be the same), so it cannot have any benefit - providing your marginal tax rate is over 30.

So my question is, if your marginal tax rate is over 30pc - or more specifically higher than whatever the company tax rate happens to be, is it possible to get any tax benefit out of trading as a company rather than as yourself?

And if not, is there any other benefit at all? 

I suppose if you do not pay yourself either dividends or wages, and you accumulate the profits in your company, you would have more money than otherwise to trade with and so can make exponentially more profit?

Hmmm


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## McLovin (31 March 2012)

Starcraftmazter said:


> So my question is, if your marginal tax rate is over 30pc - or more specifically higher than whatever the company tax rate happens to be, is it possible to get any tax benefit out of trading as a company rather than as yourself?




Yes, you don't distribute the profits.


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## Ves (31 March 2012)

The Division 7A rules are set up to stop people from effectively making a ****-load of money at 30% tax rate, then taking the cash out of the company and into a personal bank account without tax consequences.

Also not sure; but I take it that investment income is exempt from the PSI rules? Does this change if you have a _trading business?_

Obviously paying a dividend or wage (or even re-investing the profits) can limit this; but if you have profit in excess of the 30% marginal tax rate in your individual circumstances (I think this is about $80,000 currently without bothering to look) then you will be still paying a higher tax rate if you take money out of the company. Although, you could arguably make your husband or wife a director and pay them a dividend too. Depends on your asset protection requirements whether this would be suitable. 

Also handy to note that you are disadvantaged by having a company if you do not earn profits in excess of the 30% tax threshold for an individual. Why? Because your average rate of tax will be higher as it is a flat tax rate within a company. A company pays no medicare levy, however.

A lot of people set up a trust structure with relevant individuals and an additional "bucket company" to distribute profits in excess of the 30% individual tax threshold. Same Division 7A rules apply with the added complexity of the Bamford Case Rules in this set up. I am not 100% up to date with this as I no longer work in business services taxation but I believe it has to do with undistributed present entitlements to a company. Ie. you made a taxable distribution to your bucket company but did not pay it as cash, instead you took the cash out of the trust and banked it into a personal bank account.

Remember franking credits and family trust election rules also apply when considering a trust.

Also losses in both a company and trust are limited to that entity. You cannot use them to offset income from your own tax return or another entity.

Sorry for the mess; this is hard to articulate over a forum.


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## Starcraftmazter (31 March 2012)

Ves said:


> Obviously paying a dividend or wage (or even re-investing the profits) can limit this; but if you have profit in excess of the 30% marginal tax rate in your individual circumstances (I think this is about $80,000 currently without bothering to look) then you will be still paying a higher tax rate if you take money out of the company.




Keep in mind the government plans to increase taxes so that you pay 32.5c to a dollar after $37k or so in the coming financial year, so this is indeed an issue which will affect a lot of people.
http://www.ato.gov.au/individuals/c...002/046/002/002&mnu=42957&mfp=001/002&st=&cy=



Ves said:


> Sorry for the mess; this is hard to articulate over a forum.




Not at all, your insight is excellent.



I don't suppose it's possible to buy assets as a company and sell them to yourself at a very discounted price?


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## waimate01 (31 March 2012)

Starcraftmazter said:


> But then that defeats the whole point of setting up a company to pay a lower tax rate on trading profits - doesn't it?
> 
> Or do you do it for other benefits like maybe buying equipment in the company name?




Think of it as having the choice of three different tax regime environments:
- super: 15%, lots of restrictions, and the game can change on a governmental whim
- company: 30%, few restrictions
- personal: 48% or whatever it is this year, no restrictions

If you bring money out of the company, you'll end up paying personal marginal rates on it, but if you can leave it in the company, it compounds at a lower tax rate. 

The company can buy some things (eg desks are ok, holidays are not), and gets the GST refunded.

Do note, however, that the 12-month 50% CGT reduction does not apply for companies.


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## Ves (31 March 2012)

Starcraftmazter said:


> I don't suppose it's possible to buy assets as a company and sell them to yourself at a very discounted price?



 Fringe benefits tax? (I think - otherwise it'd fall under the anti-tax avoidance provisions in Part 4A)

Unfortunately the tax legislation in Australia is pretty much a fortress for any interesting inter-entity schemes.


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## Ves (31 March 2012)

Starcraftmazter said:


> Keep in mind the government plans to increase taxes so that you pay 32.5c to a dollar after $37k or so in the coming financial year, so this is indeed an issue which will affect a lot of people.
> http://www.ato.gov.au/individuals/c...002/046/002/002&mnu=42957&mfp=001/002&st=&cy=



Thanks - forgot when that was all coming in.

The whole company structure may be more beneficial on lower incomes if my initial impressions are correct.

The thing is to run a company and / or a trust you are going to pay higher accounting fees (unless you can complete the returns yourself) and you will also need a good trust deed for the Trust and a good constitution for the Company that ensures you are protected and can do what you intend.


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## McLovin (31 March 2012)

Ves said:


> Also not sure; but I take it that investment income is exempt from the PSI rules? Does this change if you have a _trading business?_




My understanding of the PSI rules is that they are designed to capture people who would otherwise be on PAYG but are using the company structure for no other reason than tax minimisation.



			
				Vespuria said:
			
		

> Fringe benefits tax? (I think - otherwise it'd fall under the anti-tax avoidance provisions in Part 4A)




The ATO would establish a market value for the assets and then levy tax according to that. Plus you'll get stung with stamp duty.

It's the oldest trick in the book and one they've been all over for years. The problem with playing around with tax is once you're on the ATO's radar you never get off it.


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## McLovin (31 March 2012)

Ves said:


> The whole company structure may be more beneficial on lower incomes if my initial impressions are correct.




You think? You'd need to be earning North of $100k before you paid the same amount of tax as would be levied on a company. Unless I'm missing something.


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## Ves (31 March 2012)

McLovin said:


> My understanding of the PSI rules is that they are designed to capture people who would otherwise be on PAYG but are using the company structure for no other reason than tax minimisation.




You're right - bit of a brain fade on my behalf. The asset (the shares) is generating the income and there are no other parties involved.


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## McLovin (31 March 2012)

Ves said:


> You're right - bit of a brain fade on my behalf.




I'll shoot a question about consolidation at you then?


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## Ves (31 March 2012)

McLovin said:


> You think? You'd need to be earning North of $100k before you paid the same amount of tax as would be levied on a company. Unless I'm missing something.



I'm thinking more of the Trust - Company - Individual set up.

For every incremental dollar over $37,000 you would distribute it to the bucket company. You'd be saving 2.5% tax.

It's different for only company and individual (which is what you are referring to) as it has to do with the overall average tax rate of the two entities.

Hmm maybe I ma getting myself confused again, however.


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## McLovin (31 March 2012)

Ves said:


> I'm thinking more of the Trust - Company - Individual set up.
> 
> For every incremental dollar over $37,000 you would distribute it to the bucket company. You'd be saving 2.5% tax.
> 
> ...




What are the rules around distributing money to a corporate bene and then paying the cash back into the trust? I could be wrong but doesn't it get treated as a dividend and taxed accordingly?


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## bellenuit (31 March 2012)

McLovin said:


> You think? You'd need to be earning North of $100k before you paid the same amount of tax as would be levied on a company. Unless I'm missing something.




I make it a bit more, just over $140K

If my calculations are correct, using the 2011/2012 scale if you earn $140K of taxable income, you pay $39,750 tax and $2,100 Medicare Levy. All up $41,850 or 29.9%.


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## Ves (31 March 2012)

McLovin said:


> What are the rules around distributing money to a corporate bene and then paying the cash back into the trust? I could be wrong but doesn't it get treated as a dividend and taxed accordingly?



 I don't know the new rules particularly well (ie Bamford) but it depends if there is are any debit loans to individuals in the trust (ie. cash has been taken out into personal bank accounts).

You wouldn't pay any actual cash into the company in this structure (just an end of year accounting distribution journal). The cash stays in the Trust until you need it. You will only have a problem, if I understand correctly, if you need to take it out of the trust to an individual beneficiary. But as you said, the company can pay a dividend to the Trust (if it is set up as the share holder) to decrease these entitlement loans. 

sorry really hard to explain over a forum; we need some glossy diagrams!

PS: I will pass on the consolidation question, my mind is well and truly on AFL round one this weekend!


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## McLovin (31 March 2012)

Ves said:


> You wouldn't pay any actual cash into the company in this structure (just an end of year accounting distribution journal). The cash stays in the Trust until you need it.




Actually, with a corporate bene you need to take the cash out and put it in the company's account. The ATO are pretty much saying they don't like bucket companies.

I don't know much about Bamford. To be quite honest, I think the best thing to do is find a good accountant and let them worry about it! My general approach is, it's too complicated it's probably not legal.

I've got a mate who is a tax lawyer with one of the Big Four accounting firms. I'll ask him tonight.



			
				Vespuria said:
			
		

> I will pass on the consolidation question, my mind is well and truly on AFL round one this weekend!




What's AFL?


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## McLovin (31 March 2012)

bellenuit said:


> I make it a bit more, just over $140K
> 
> If my calculations are correct, using the 2011/2012 scale if you earn $140K of taxable income, you pay $39,750 tax and $2,100 Medicare Levy. All up $41,850 or 29.9%.




You're probably right. I just picked a number out of the air.


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## Ves (31 March 2012)

McLovin said:


> Actually, with a corporate bene you need to take the cash out and put it in the company's account. The ATO are pretty much saying they don't like bucket companies.
> 
> I don't know much about Bamford. To be quite honest, I think the best thing to do is find a good accountant and let them worry about it!
> 
> I've got a mate who is a tax lawyer with one of the Big Four accounting firms. I'll ask him tonight.



Good idea - if you find out anything please post here. There were major rule changes after I switched to SMSF accounting.  From the little I have read and been told about the ATO is heavily against using Trusts as a way to save tax (ie. changes to minor beneficiary tax free thresholds,  bucket company distributions).

I would say it kind of defeats the purpose if you actually have to pay cash to the company.  Unless you plan to pay it back out as a dividend or invest it in there.  Just makes everything seem very complicated.


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## Starcraftmazter (31 March 2012)

bellenuit said:


> I make it a bit more, just over $140K
> 
> If my calculations are correct, using the 2011/2012 scale if you earn $140K of taxable income, you pay $39,750 tax and $2,100 Medicare Levy. All up $41,850 or 29.9%.




Not sure that's correct.

Let's use the new 12-13 tax brackets.

If you earn a $37,000 salary and make $20,000 from trading in a year, you would pay in total $3,572 + $6,500 = $10,072 tax

If you earn the same $37,000 salary but have a company which makes $20,000 through your trading you will pay a total of $3,572 + $6,000 = $9,572 tax.

The same will be true for all salaries higher than that (or if you make that amount through trading under your own name, doesn't matter).

And it will be more true for the higher tax brackets where you will save even more money.

At the current tax brackets, you would have to make $80,000 before every dollar afterwards is taxed less under company tax than your marginal.


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## McLovin (31 March 2012)

Starcraft, I don't think we were discussing a scenario where someone has a separate day job.


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## Ves (31 March 2012)

Thinking about it, you could pay the equivalent salary of $37,000 from the company and achieve the same result (except you also get a tax deduction in the company).


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## Starcraftmazter (31 March 2012)

McLovin said:


> Starcraft, I don't think we were discussing a scenario where someone has a separate day job.




Does it make a difference though? My point applies to any income over 37k, whether it's a salary, wage, capital gains, or whatever else.



Ves said:


> Thinking about it, you could pay the equivalent salary of $37,000 from the company and achieve the same result (except you also get a tax deduction in the company).




Quite true. That might be the easiest thing to do for professional traders.


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## McLovin (31 March 2012)

Starcraftmazter said:


> Does it make a difference though? My point applies to any income over 37k, whether it's a salary, wage, capital gains, or whatever else.




Sure. As you earn more, the company structure (assuming no trust) will pay less tax than an individual. At $500k/annum you would be paying almost $50k less in tax/year if the income was generated through a company rather than an individual.


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## Ves (31 March 2012)

Starcraftmazter said:


> Does it make a difference though? My point applies to any income over 37k, whether it's a salary, wage, *capital gains*, or whatever else.




Just a quick aside; and I am sure this will not affect traders. But for long term holds over 12 months a company does not get the CGT discount.

Also; forgot to mention before if you pay a wage to yourself from a company you will also have to pay equivalent super gaurantee contributions (SGC) and be registered for PAYG withholding. Probably does not change much, but it is added complication and compliance that you need to be prepared for.


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## craft (31 March 2012)

Don’t forget the SMSF in the structure.

And really need a trust in there for CGT exemptions reasons and discretionary distribution.

Efficient distribution this year is wage/dividend/distribution of 130K with 50K paid into SMSF as deductable contribution.

80K income @ marginal 31.5%

50K SMSF @ 15% (higher limits if you are older)

Remainder taxed as company profit @ 30% (potential becomes 28% down the track)

Next year

Marginal rate goes to 34% for 80K of income – could still be worth paying out to 80K and incurring the extra 4%.(6%) to get flexibility of some money in personal name

If you have a spouse/partner, all times 2

Now that Labour has tightened up contribution caps and Family Tax Benefit Income definitions, system can’t be rorted like it used to – but it still far better then what the poor PAYG earner cops.


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## bellenuit (31 March 2012)

Starcraftmazter said:


> Not sure that's correct.
> 
> Let's use the new 12-13 tax brackets.
> 
> ...




Yes, you are correct. There was a flaw in my logic in that I was trying to see what an individual's taxable income should be before they on average pay more than 30% tax. But that is the wrong way to look at it, as once their marginal rate is above 30%, they are better off earning additional income in a company structure.

Although $80K+ is where the tax rates (2011/2012) jumps from 30% to 37%, if you add in the medicare levy which is 1.5%, technically you are better off earning additional income in a company structure when your personal taxable income goes above $37K as the tax rate + medicare levy will be 31.5% above that.


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## McLovin (31 March 2012)

bellenuit said:


> Yes, you are correct. There was a flaw in my logic in that I was trying to see what an individual's taxable income should be before they on average pay more than 30% tax. But that is the wrong way to look at it, as once their marginal rate is above 30%, they are better off earning additional income in a company structure.




Yes, that's correct if there is a trust involved and profits can be distributed through that structure. Otherwise you need to look at which will pay the lowest tax rate. In that case a company structure wins the more money you make.


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## Starcraftmazter (31 March 2012)

Ves said:


> Also; forgot to mention before if you pay a wage to yourself from a company you will also have to pay equivalent super gaurantee contributions (SGC) and be registered for PAYG withholding. Probably does not change much, but it is added complication and compliance that you need to be prepared for.




Could you negate this by paying dividends instead?



On a somewhat related note...

Let's say you are a trader, however you also want to allow some of your family members and/or friends to benefit from your trading mechanism, and you wish to apply it to both your SMSF and your non-SMSF finances.

In order to not have many different broker accounts (which is a logistical nightmare), would I be correct to say you could have all of those as members of a trust, and everyone would own a portion of the trust equivalent to their investment?

And you just pool all their trust money into one broker account and trade as the trust.

Is it possible to fluently add and remove money to/from a trust by any member?

Cheers


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## McLovin (31 March 2012)

Starcraftmazter said:


> Could you negate this by paying dividends instead?
> 
> 
> 
> ...




Yes, you set up a unit trust instead of a discretionary trust. However, a unit trust does not offer the same asset protection as a family trust. The units you have in the trust are property and can be taken by creditors.

Generally if you set up a unit trust, then your interest in the trust should be owned by a discretionary trust. Of course all these trusts and trustees cost money to set up and run.


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## Starcraftmazter (31 March 2012)

McLovin said:


> Yes, you set up a unit trust instead of a discretionary trust. However, a unit trust does not offer the same asset protection as a family trust. The units you have in the trust are property and can be taken by creditors.
> 
> Generally if you set up a unit trust, then your interest in the trust should be owned by a discretionary trust. Of course all these trusts and trustees cost money to set up and run.




Let's say I would be looking to exclusively trade in the stock-market, and I wouldn't hold anything for over a year anyway.

Are there still any downsides? And if so, is there a more efficient way to do this?


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## McLovin (31 March 2012)

Starcraftmazter said:


> Let's say I would be looking to exclusively trade in the stock-market, and I wouldn't hold anything for over a year anyway.
> 
> Are there still any downsides? And if so, is there a more efficient way to do this?




A unit trust is the only way to do it. A company won't give you the tax flexibility. 

Of course the bigger issue to consider is that you're now running an investment scheme with a whole different set of regulatory issues and investment documentation and reporting requirements.


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## Starcraftmazter (31 March 2012)

McLovin said:


> Of course the bigger issue to consider is that you're now running an investment scheme with a whole different set of regulatory issues and investment documentation and reporting requirements.




Do you really need to worry about it? I mean it's not a public managed fund or anything, just a family trust per say.


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## McLovin (31 March 2012)

Starcraftmazter said:


> Do you really need to worry about it? I mean it's not a public managed fund or anything, just a family trust per say.




Apparently not...



> As a result, any unit trust with more than 20 investors, or any unit trust with less than 20 members that is operated by an entity running several such schemes, is likely to be regulated as a managed investment scheme under the Corporations Act. Only the operators of small, closely-held unit trusts will be able to operate without an AFSL.




http://www.gadens.com.au/publications/Pages/Multijuridictional-fund-marketing-in-Australia.aspx


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## Starcraftmazter (1 April 2012)

How about.... a non-profit organisation.

Is it possible to set-up a non-profit organisation with you as the director, which donates money (profits from trading under the non-profit organisation's name) to causes of your choice?


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## craft (1 April 2012)

Starcraftmazter said:


> How about.... a non-profit organisation.
> 
> Is it possible to set-up a non-profit organisation with you as the director, which donates money (profits from trading under the non-profit organisation's name) to causes of your choice?




Yes - Establish a Private Ancillary Fund.

http://www.philanthropy.org.au/ancillaryfunds/pafs/index.html


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## Gringotts Bank (1 April 2012)

Starcraftmazter said:


> How about.... a non-profit organisation.
> 
> Is it possible to set-up a non-profit organisation with you as the director, which donates money (profits from trading under the non-profit organisation's name) to causes of your choice?




Sheesh.


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## Starcraftmazter (1 April 2012)

craft said:


> Yes - Establish a Private Ancillary Fund.
> 
> http://www.philanthropy.org.au/ancillaryfunds/pafs/index.html




But let's say that the causes are not at all tax deductible? I'm not concerned about the tax-deductibility of my contribution to such a hypothetical fund, so much as it being able to donate it's ongoing profits freely. These could be organisations in other countries, not charities or anything.




Gringotts Bank said:


> Sheesh.




What?


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## craft (1 April 2012)

Starcraftmazter said:


> But let's say that the causes are not at all tax deductible? I'm not concerned about the tax-deductibility of my contribution to such a hypothetical fund, so much as it being able to donate it's ongoing profits freely. These could be organisations in other countries, not charities or anything.




Nothing stops you donating your profits!!! If you want to run a fund that is exempt from tax on the earnings then you have to use the PAF mechanism and abide by the rules.

If you’re serious then a PAF is a great vehicle and all the information can be found in the link provided. 

If you are not serious go and blow in somebody else’s ear


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## Gringotts Bank (1 April 2012)

Starcraftmazter said:


> organisations in other countries, not charities or anything.
> 
> 
> What?




Sounds dodgy.  Why the ?


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## Starcraftmazter (1 April 2012)

Gringotts Bank said:


> Sounds dodgy.  Why the ?




Just thinking outside the box


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## skc (2 April 2012)

waimate01 said:


> The company can buy some things (eg desks are ok, holidays are not), and gets the GST refunded.




On the issue with GST - would it be correct to say that if you register for GST (and do BAS quarterly) as an individual trader you can get the GST refunded on expenses as well?


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## McLovin (2 April 2012)

Starcraftmazter said:


> But let's say that the causes are not at all tax deductible? I'm not concerned about the tax-deductibility of my contribution to such a hypothetical fund, so much as it being able to donate it's ongoing profits freely. These could be organisations in other countries, not charities or anything.




It sounds like some half-baked scheme to funnel money out of the country tax-free. Can you send the profits overseas? Yes. And then what? Why not just set the company up overseas in the first place? Do you think the ATO will just allow you to send "charitable donations" to an unknown offshore entity? They'll be all over you like a fly on cow ****.

The ATO are not dummies, chances are anything you're thinking of has been tried thousands of times before.


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## McLovin (2 April 2012)

skc said:


> On the issue with GST - would it be correct to say that if you register for GST (and do BAS quarterly) as an individual trader you can get the GST refunded on expenses as well?




Yes.


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## Starcraftmazter (2 April 2012)

McLovin said:


> It sounds like some half-baked scheme to funnel money out of the country tax-free. Can you send the profits overseas? Yes. And then what? Why not just set the company up overseas in the first place? Do you think the ATO will just allow you to send "charitable donations" to an unknown offshore entity? They'll be all over you like a fly on cow ****.




Not at all, just that if you want to donate money to organisations which are not charities or charities in other countries so that your donation cannot be tax deductible, perhaps it is more prudent to set up a company that would donate it's profits to them, etc. That's what I was thinking.


Though now that you bring this up, is it indeed possible and beneficial to set up a company offshore? In some tax haven somewhere? Then you won't need to pay tax in Australia and you could use that company to make whatever purchases or other trades? And that includes running a legitimate company? (Assuming that the company will not need any physical presence so the country it's registered in is irrelevant).


Would anyone recommend any books I can read on this sort of stuff? (And I do mean books, not the Australian accounting law, corporations act, etc).


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## craft (2 April 2012)

Starcraftmazter said:


> Not at all, just that if you want to donate money to organisations which are not charities or charities in other countries so that your donation cannot be tax deductible, perhaps it is more prudent to set up a company that would donate it's profits to them, etc. That's what I was thinking.
> 
> 
> Though now that you bring this up, is it indeed possible and beneficial to set up a company offshore? In some tax haven somewhere? Then you won't need to pay tax in Australia and you could use that company to make whatever purchases or other trades? And that includes running a legitimate company? (Assuming that the company will not need any physical presence so the country it's registered in is irrelevant).
> ...




Confused. First you ask about structures for philanthropy now you are asking about structures for free loading. Do you have multiple personalities?

I reckon if you want to use a tax haven - then move there.


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## Starcraftmazter (2 April 2012)

craft said:


> I reckon if you want to use a tax haven - then move there.




Well I plan to at some point, but until then.... :

It would be a philanthropy structure in my view - but probably not one in the eyes of the authorities who determine what counts as such.


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## McLovin (2 April 2012)

Starcraftmazter said:


> Not at all, just that if you want to donate money to organisations which are not charities or charities in other countries so that your donation cannot be tax deductible, perhaps it is more prudent to set up a company that would donate it's profits to them, etc. That's what I was thinking.




But if you're a registered non-profit then what does it matter? You won't pay tax on your profits anyway.



Starcraftmazter said:


> Though now that you bring this up, is it indeed possible and beneficial to set up a company offshore? In some tax haven somewhere? Then you won't need to pay tax in Australia and you could use that company to make whatever purchases or other trades? And that includes running a legitimate company? (Assuming that the company will not need any physical presence so the country it's registered in is irrelevant).




You'll still pay tax in Australia. It will be considered a Controlled Foreign Company by the ATO. There are exceptions to the rule but generally, if you set it up in a low or no tax jurisdiction they will want their share.



> Australian shareholders who have a controlling interest in certain foreign companies are taxed on their share of the foreign company's 'attributable income'. This includes passive income, such as income from investments (for example, rent, some interest, dividends and royalties) and certain sales and services income from related party transactions. This measure will generally not apply where the CFC's income is comparably taxed in certain countries or the income is derived almost exclusively from active business activities. Special anti-avoidance provisions may apply to specific benefits provided (directly or indirectly) by CFCs resident in certain countries, to their associated entities. That is, the benefit may be deemed to be a dividend paid to the recipient taxpayer and assessed accordingly.




http://www.ato.gov.au/corporate/content.aspx?doc=/content/46908.htm&page=6&H6

If this was America then you'd have far more loopholes to get through. The reality is the ATO does a pretty good job of protecting the revenue base.

There's no books (unless you want some of my old law textbooks) because the average punter on the street doesn't have enough cash to make playing around with tax jurisdictions worthwhile. Hire a tax lawyer; I hope you have deep pockets.


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## Starcraftmazter (2 April 2012)

McLovin said:


> But if you're a registered non-profit then what does it matter? You won't pay tax on your profits anyway.




Yeh, that's what I'm getting at - wondering whether that's possible to be considered a non-profit entity if the entity gives trading profits away to those groups or organisations chosen by the director.



McLovin said:


> You'll still pay tax in Australia. It will be considered a Controlled Foreign Company by the ATO. There are exceptions to the rule but generally, if you set it up in a low or no tax jurisdiction they will want their share.
> 
> If this was America then you'd have far more loopholes to get through. The reality is the ATO does a pretty good job of protecting the revenue base.
> 
> There's no books (unless you want some of my old law textbooks) because the average punter on the street doesn't have enough cash to make playing around with tax jurisdictions worthwhile. Hire a tax lawyer; I hope you have deep pockets.




Man this country blows 

I meant books on company structures and company tax in Australia, etc. Something to give people starting a small business an idea of what sort of regulatory and tax torture they have to get through.


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## McLovin (2 April 2012)

Starcraftmazter said:


> Yeh, that's what I'm getting at - wondering whether that's possible to be considered a non-profit entity if the entity gives trading profits away to those groups or organisations chosen by the director.




I can't see why not as long as it's not making charitable donations to the Starcraft Fund...





Starcraftmazter said:


> Man this country blows




Why because it doesn't allow tax evasion?



Starcraftmazter said:


> I meant books on company structures and company tax in Australia, etc. Something to give people starting a small business an idea of what sort of regulatory and tax torture they have to get through.




For a small business tax is very simple. Money comes in, money goes out, tax office takes its cut. 

http://www.cch.com.au/au/onlinestor...er-Tax-Guide-2012-50th-Edition&ProductID=9082

That's a pretty indepth book. Probably best to read it with the tax legislation handy.


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## Starcraftmazter (2 April 2012)

McLovin said:


> Why because it doesn't allow tax evasion?
> 
> 
> 
> ...




Just all these rules and regulations....and why does business have to pay tax anyway? It's basically a double tax since employees get taxed on their income, I just don't like it. Imagine how prosperous Australia would be if people could just go out start and business and employ people and not have to do any tax, accounting, or any other government nonsense.

One thing I do not understand/have a problem with is GST. Let us say I run a business  without a physical presence in Australia, selling IT services from US/Euro servers. Do I need to charge Australian customers GST? And if so, how can that possibly be justified?

Also thanks for the book recommendation, I'll be sure to get it.


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## craft (2 April 2012)

Starcraftmazter said:


> Just all these rules and regulations....
> 
> Also thanks for the book recommendation, I'll be sure to get it.




I can just imagine you reading that one cover to cover Starcraft.

sometimes you just gotta laugh.


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## McLovin (2 April 2012)

Starcraftmazter said:


> Just all these rules and regulations....and why does business have to pay tax anyway? It's basically a double tax since employees get taxed on their income, I just don't like it. Imagine how prosperous Australia would be if people could just go out start and business and employ people and not have to do any tax, accounting, or any other government nonsense.




How can it be a double tax when employee expenses are tax deductions to the company?

Without getting well OT and into a debate about the justification for taxation, I'll only say that I think it's absolutely necessary and creates a more level society.



Starcraftmazter said:


> One thing I do not understand/have a problem with is GST. Let us say I run a business  without a physical presence in Australia, selling IT services from US/Euro servers. Do I need to charge Australian customers GST? And if so, how can that possibly be justified?




No. AFAIK, GST on services is dependant on where the service is performed. But then it also might come back to how you set the company up. If you are the only shareholder and you are resident in Australia then presumably you have set the company up overseas to get around paying GST. I'm sure there is some anti-avoidance rule in there to cover that.



Starcraftmazter said:


> Also thanks for the book recommendation, I'll be sure to get it.




That book recommendation was slightly tongue-in-cheek, but if you can get through it, all power to you.

FWIW, I'm neither an accountant nor a lawyer so this is just my own understanding based on experience. As usual, DYOR.


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## Starcraftmazter (2 April 2012)

McLovin said:


> No. AFAIK, GST on services is dependant on where the service is performed. But then it also might come back to how you set the company up. If you are the only shareholder and you are resident in Australia then presumably you have set the company up overseas to get around paying GST. I'm sure there is some anti-avoidance rule in there to cover that.




Doesn't it make sense to set up a company in the country you live though for convenience. In my case, the reason the services would be provided from other countries, is that it is much much cheaper to do so.

What you point out is what confused me about the GST rules I was reading up last night. They talk about business activity in Australia...well what the hell does that mean. Looks like people in my situation have to pay money to someone to explain to us what the government wants. Sounds unreasonable.


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## McLovin (2 April 2012)

Starcraftmazter said:


> Doesn't it make sense to set up a company in the country you live though for convenience. In my case, the reason the services would be provided from other countries, is that it is much much cheaper to do so.




Who's billing the end user, the foreign company or you?

ETA: Now that I think about it, if the taxable amount is over $1,000 then whoever has bought it needs to pay GST. If they are a business the can claim it back.


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## Starcraftmazter (2 April 2012)

McLovin said:


> Who's billing the end user, the foreign company or you?
> 
> ETA: Now that I think about it, if the taxable amount is over $1,000 then whoever has bought it needs to pay GST. If they are a business the can claim it back.




The company, but why is it foreign?


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## McLovin (2 April 2012)

Starcraftmazter said:


> The company, but why is it foreign?




It doesn't matter. GST is levied on the buyer not the seller. If I import goods to Australia then I have to pay GST on them, the foreign company does not collect the GST, Australian Customs do. I can't see it being any different for services (with perhaps a difference in how the GST is collected).

Anyway, that's my lunch, back to work now.


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