Setting up what structure for investing in shares?

[littleboybluefish]

Hi

My situation is that I have some cash for investing in stock market (eg. buy ETF / shares, etc.). I am working full time. I have a mother who is living overseas and will come to australia next year to live permanently. She has no income in Australia. I am thinking to set up a structure to invest, also I need to consider the tax benefit and risk (eg. someone would come to take the profit via court).

Is it the good structure to set up a company as the trustee to manage the family trust (beneficiaries include me and my mother) and to buy shares under the trustee account or trust account? How to do that? What will be the tax rate for the managing company?

When I transfer my cash from my personal account to the trustee/company account to buy shares, is there any tax involved?

Thank you.
Jacob

 

[bellenuit]

Hi

My situation is that I have some cash for investing in stock market (eg. buy ETF / shares, etc.). I am working full time. I have a mother who is living overseas and will come to australia next year to live permanently. She has no income in Australia. I am thinking to set up a structure to invest, also I need to consider the tax benefit and risk (eg. someone would come to take the profit via court).

Is it the good structure to set up a company as the trustee to manage the family trust (beneficiaries include me and my mother) and to buy shares under the trustee account or trust account? How to do that? What will be the tax rate for the managing company?

When I transfer my cash from my personal account to the trustee/company account to buy shares, is there any tax involved?

Thank you.
Jacob

That can be a good structure. There will be costs involved in setting up the trust and the trustee company, but once set up annual running costs are not too bad. $275 (or thereabouts) ASIC fee for the company trustee, $1,000 or so for the accountant for the tax return and for the trustee declaration. The accountancy fee can vary widely, depending on whether you do all the hackwork yourself and just give him the totals to plug into the return, or whether you just give him a shoe box of receipts and expect him to work it out.

It is a good structure in your case as your mother has zero income, so you can direct most of the trust income to her. I am assuming she will be an Australian citizen, as I am not sure the implications for a non-resident beneficiary. The trusts assets also have some legal protection that they would not have if held in your own hands, but like everything legal, it is never clear cut.

You will need professional advice on setting up the trust (accountant or lawyer) and do not try to do it yourself using some of the template structures you can pay for on-line. A wrongly set up trust can cost you dearly. You can set up bank accounts and broker accounts in the name of the Trustee (usually of the form "ABC Pty Limited as trustee for XYZ Family Trust). Keep the company and trust name short as I have read of people having problems transferring to/from trust accounts when the relevant bank or broker has a limited size for the sender/receiver name and the full name ends up being truncated. Setting up trust and brokerage accounts is more complex than for an individual as they will usually require certified copies of the trust deed and perhaps declarations from each beneficiary. Also, not every bank and brokerage will have accounts for trusts, but the major ones will.

A trust must distribute all its income each year, otherwise any retained income is taxed at the top marginal rate. Distributed income is not taxed in the hands of the trustee, but flows through to the beneficiary and is taxed together with the beneficiaries' other income (hence the advantage of having a low income beneficiary, like your mom). The Trust Company itself does not file a tax return, assuming its only role is that of a trustee and doesn't get distributions or have a separate business.

There is no tax on transferring cash to or from the trust to or from your own account. However transferring shares to the trust is deemed a capital gain event for you and CG tax must be paid by you as if you had sold at the market rate for the transfer date. (This also becomes the cost base for those shares now held by the trust).

There is so much you should read up on first before starting the trust, particularly if it is likely to change over the years (marriage, children, death etc.).

Also remember that Labor have trusts in their sights and if they win the next election there could be many changes that may be detrimental to the trust structure.

 

[MovingAverage]

A trust must distribute all its income each year, otherwise any retained income is taxed at the top marginal rate.

Also remember that Labor have trusts in their sights and if they win the next election there could be many changes that may be detrimental to the trust structure.

The above are two good reasons why it might (in some situations) be good to just forget about the trust and just set up your trading vehicle as the incorporated company with the shareholders being "beneficiaries". Unlike trusts a incorporated company does not need to distribute all of its income each year but when it does it simply pays shareholders a dividend--which can be franked or unfranked. The incorporated company will of course pay the corporate tax rate on its profit (unlike a trust) but it does provide the franking/unfranking advantages. An incorporated company vehicle is not in Labor's sights so provides a level of certainty from Labor's desire to screw things up.

People should not be fooled into thinking assets held within a discretionary trust are untouchable by greedy third parties. The courts have and will readily force the handover of assets in a trust to interested third parties--for example, divorces and bankruptcies.

I think it is important to weigh up the pro and cons of using an incorporated company alone verse the corporate trustee and discretionary trust structures--the latter can add unnecessary complexity without any real benefits.

 

[Sharkman]

Also remember that Labor have trusts in their sights and if they win the next election there could be many changes that may be detrimental to the trust structure.

maybe, maybe not, but i've never been particularly concerned by it. they've talked about reining in trusts for years, but when push comes to shove i doubt they'll actually do it. politicians (on both sides) likely make extensive use of trusts themselves. even if they don't, their donors most certainly do, and won't be happy if they pass legislation that materially impacts trusts. sure, they'll make noises about it now and then to appease voters (the majority of whom won't be using trusts), but it's all talk in my opinion, i just can't see them shooting themselves in the foot like that.