Structures?

[The Barbarian Investor]

Just wondering whether people here buy or trade under differing structures for the different benefits they offer..

Such as buying in your own name, your partners, a sole trader, a company (pty ltd), through a family trust , Hybrid Discretionary trust or any of the other types of trusts..or any other structure?

Is there a preferred structure for tax and income benefits?

The Barbarian Investor

 

[GreatPig]

I hold an investment portfolio in an HDT and trade from a company owned by another HDT (for reasons particular to my personal situation).

Personally, I wouldn't invest or trade in either my own or my wife's name unless I was only doing such a small amount that a trust wasn't warranted. A family trust is more flexible, assuming you have family members you can distribute to, and provides better protection.

Whether a trust or company would be better for you would likely depend on your personal situation and what you're trying to achieve, so you should talk to a structuring specialist.

Cheers,
GP

 

[son of baglimit]

well put GP - good to find a knowledgeable sole.
barbarian, your situation will decide what is the best structure for you.
whether you are on your own, have a partner (business or life or others), the income split of the partnership, other family members who are beneficiaries, the income levels outside of the investment and therefore the tax bracket, any CGT issues, whether a trust does or doesnt have a distribution, any foreign residents involved, whether their distributions are fixed or can fluctuate - all questions that need answering.

as tech said, if you aint sure, interview a few accountants before you settle for one - after all, you are the one paying the fees.

 

[money tree]

SUPER provides a lower tax rate and better protection.......

consider this:

At the Super tax rate of 15%, any franking credits received (30%) are in effect worth double.

example:

Traders A, B, C and D are in the top tax bracket. All receive $7,000 in divs via various structures:

Trader A trades as an individual. He receives $3,000 in franking credits. As his tax rate is 47%, his tax liability is $4,700. Take out the $3,000 franking credits and he still has to pay $1,700.

Trader B trades through a company. He receives $3,000 in franking credits. As his tax rate is 30%, the tax liability is $3,000. Take out the $3,000 franking credits and he has no liability.

Trader C trades through a trust. He receives $3,000 in franking credits. The trust splits the income between himself (47%) and his wife (15%) giving an average of 31%. The tax liability is $3,100. Take out the $3,000 franking credits and he has $100 still to pay.

Trader D trades through a Self managed Super Fund. He receives $3,000 in franking credits. As his tax rate is 15%, his tax liability is $1,500. Take out the $3,000 franking credits and he still has $1,500 left. This $1,500 tax refund is equivalent to a $3,191 profit share trade as an individual.

 

[Milk Man]

SUPER provides a lower tax rate and better protection.......

consider this:

At the Super tax rate of 15%, any franking credits received (30%) are in effect worth double.

example:

Traders A, B, C and D are in the top tax bracket. All receive $7,000 in divs via various structures:

Trader A trades as an individual. He receives $3,000 in franking credits. As his tax rate is 47%, his tax liability is $4,700. Take out the $3,000 franking credits and he still has to pay $1,700.

Trader B trades through a company. He receives $3,000 in franking credits. As his tax rate is 30%, the tax liability is $3,000. Take out the $3,000 franking credits and he has no liability.

Trader C trades through a trust. He receives $3,000 in franking credits. The trust splits the income between himself (47%) and his wife (15%) giving an average of 31%. The tax liability is $3,100. Take out the $3,000 franking credits and he has $100 still to pay.

Trader D trades through a Self managed Super Fund. He receives $3,000 in franking credits. As his tax rate is 15%, his tax liability is $1,500. Take out the $3,000 franking credits and he still has $1,500 left. This $1,500 tax refund is equivalent to a $3,191 profit share trade as an individual.

I dont even know if i'll be alive in thirty years. What will I buy then? A solid gold walking stick or a whole heap of viagra?

 

[son of baglimit]

well if the viagra dont work then the walking stick could be..........

 

[The Barbarian Investor]

ohhhh nasty SOB (Son of Baglimit)

TBI

 

[Bulltrader]

...back on topic

GP,

Your structure sounds interesting. I'm researching HDT's at the moment and understand that they can be used to claim interest and expenses which exceed income (ie. negative gear) yet also provide the advantages of traditional Discretionary Trusts.

Question: What are the advantages of trading from a company that is owned by a HDT (as you do) rather using the HDT to trade directly?

Cheers

BT

 

[money tree]

the advantage is that liability is limited. profits can be retained and reinvested instead of being dispersed.

 

[Bulltrader]

Thanks money tree.

That's got me thinking. Wouldn't the Trust be better able to pay potentially less tax because it can distribute to beneficiaries on lower than 30% marginal tax rates and once that avenue is exhausted then it could distribute to a company beneficiary?

Also the profit distribution from what I read can be a book entry and therefore the funds can be retained for reinvestment.

In terms of liability I must admit I haven't researched this area in any great detail.

I guess in the end it all depends on individual circumstances. I think I need to go and see a specialist in this area.

Does anyone know of a good specialist (Melbourne based) in business structures that they would recommend?

Cheers

BT

 

[brent2]

SUPER provides a lower tax rate and better protection.......

consider this:

At the Super tax rate of 15%, any franking credits received (30%) are in effect worth double.

example:

Traders A, B, C and D are in the top tax bracket. All receive $7,000 in divs via various structures:

Trader A trades as an individual. He receives $3,000 in franking credits. As his tax rate is 47%, his tax liability is $4,700. Take out the $3,000 franking credits and he still has to pay $1,700.

Trader B trades through a company. He receives $3,000 in franking credits. As his tax rate is 30%, the tax liability is $3,000. Take out the $3,000 franking credits and he has no liability.

Trader C trades through a trust. He receives $3,000 in franking credits. The trust splits the income between himself (47%) and his wife (15%) giving an average of 31%. The tax liability is $3,100. Take out the $3,000 franking credits and he has $100 still to pay.

Trader D trades through a Self managed Super Fund. He receives $3,000 in franking credits. As his tax rate is 15%, his tax liability is $1,500. Take out the $3,000 franking credits and he still has $1,500 left. This $1,500 tax refund is equivalent to a $3,191 profit share trade as an individual.

Hi there,

I didnt think you could actually trade from a Superannuation Trust Fund? Am I wrong? I thought they were pretty strict on this with SMSF?

Brent

 

[GreatPig]

Wouldn't the Trust be better able to pay potentially less tax because it can distribute to beneficiaries on lower than 30% marginal tax rates and once that avenue is exhausted then it could distribute to a company beneficiary?

That's another way of doing things, but I think there are issues with having corporate beneficiaries. The primary one is who would the shareholders be? Once funds are distributed to the company, how are you going to get them out again to reinvest? If the company could be fully owned by the same trust that it's a beneficiary of, then that would be very convenient, but I was advised against doing that, although I'm not quite sure why. I think it had something to do with Part IVa, the general anti-avoidance provisions. Otherwise you need a way of getting the funds out of the company and back into the trust to reinvest. If it was an HDT then the company may be able to buy income units, but then you may have problems with discretionally distributing income to the low income earner first (probably depends on the trust deed to some extent).

And while a trust could potentially distribute to a low income earner and pay less tax than a company, I'm looking to the future and anticipating profits one day that would leave no low income earners (although the raising of the top marginal rate threshold has probably moved that further into the future now). Also, I want to eventually build up an investment portfolio in that trust, so don't want to trade in the same entity. With the way I'm doing it, the company can still pay a dividend to the trust, with the final distribution going to a low income earner, and that low income earner could claim a rebate for the excess franking credits. I would however lose the use of that amount in the interim.

As Moneytree indicated though, my main reason for trading in a company is the ability to retain earnings. Also, it allows me to be sole director, whereas my wife and I are both trustees of the trust. It avoids having to get my wife to sign every bit of paper that comes our way.

Also the profit distribution from what I read can be a book entry and therefore the funds can be retained for reinvestment.

That has no bearing on the amount of tax payable. The retained profits would effectively be either a loan or gift back from the beneficiary.

Does anyone know of a good specialist (Melbourne based) in business structures that they would recommend?

Dale Gatherum-Goss is popular, but I think also very busy. He has a book on trusts that is worth reading.

Cheers,
GP

 

[brent2]

Hi there,

I didnt think you could actually trade from a Superannuation Trust Fund? Am I wrong? I thought they were pretty strict on this with SMSF?

Brent

Does anyone know if I am right here or not? Can you actually trade shares/futures/cfd with your SMSF?

Would love to know.

Brent

 

[rozella]

You are correct brent2......your SMSF is an investor, that changes your investment from time to time to better your investment...he-he