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  • #979449
    paranda
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    Hi All,
    We are about ready to incorporate our company and I need to say whether we want to hold the shares in our own name or via a Trust or other structure?

    We already have a family trust setup with a Corporate Trustee, so no extra costs in going this way. The trust doesn’t trade anymore, but does have tax losses.

    So my question is which would you advise & why?
    Thanks
    P.

    #1114356
    Chris Brodie
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    paranda, post: 128207 wrote:
    Hi All,
    We are about ready to incorporate our company and I need to say whether we want to hold the shares in our own name or via a Trust or other structure?

    We already have a family trust setup with a Corporate Trustee, so no extra costs in going this way. The trust doesn’t trade anymore, but does have tax losses.

    So my question is which would you advise & why?
    Thanks
    P.

    Hi P

    Two reasons to hold shares in the trust.

    1) Risk / asset protection. The share held in the trust are held for your benefit but not owned by you. Therefore if you are sued or worst case made bankrupt then the trust holds the shares and it gives you the ability / potential to retain ownership and control of the company. Another aspect here to consider is if the company has assets (operating equipment / vehicles etc.) then you could consider holding these in the trust and paying a hire / service fee from the company to the trust.

    2) Income splitting. By paying dividends (franked or unfranked) from the company to the trust you have the ability to spread the income over your family (I assume the family trust was set up because there is a family). However if there are losses in the trust, they will need to be “soaked up” first before income can flow through.

    How and where you place the shares needs to be considered as part of your overall structure with consideration of tax planning and asset protection. Also note that even if the bulk of the shares are held in the trust, then you also need to retain one in your individual name. I hope this helps.

    All the best,

    #1114357
    James Millar
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    Just extending on the original post – utilising accumulated losses in a trust requires satisfaction of the trust loss integrity measures so it may not be clear cut. You can’t always just inject income and absorb losses.

    Secondly, using the trust in this way will likely effect your significant individual / small business participation percentage which is required to access the small business CGT concessions. It can be done but you need to monitor the annual distributions very carefully to ensure eligibility. We had a client recently miss out on the 15 year exemption on selling their business (tax free) because they failed the required 20% test in one or two years (of the fifteen). It was a very expensive mistake and thankfully not ours. A good lesson for anyone that pursues low cost accounting and tax solutions as a major criteria.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1114358
    apj
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    Good information so far.

    You might need to check with your accountant whether your trust has made a ‘family trust election’ and, if so, you should be ok to access the losses provided your company makes an ‘interposed entity election’ to be part of the same family group.

    This is one of those instances you definitely need proper advice from your accountant as it could have implications many years into the future as already pointed out re: accessing small business CGT concessions. Owning shares in a trust doesnt necessarily exclude accessing these concessions however you need to ensure you have concessional stakeholders and so on.

    Cheers
    Aaron

    #1114359
    paranda
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    Chris Brodie, post: 128223 wrote:
    Hi P
    Also note that even if the bulk of the shares are held in the trust, then you also need to retain one in your individual name. I hope this helps.

    All the best,
    Thank you – this is great. Can I ask why there still needs to be one retained in the individual name ?

    #1114360
    paranda
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    JamesMillar, post: 128346 wrote:
    Just extending on the original post – utilising accumulated losses in a trust requires satisfaction of the trust loss integrity measures so it may not be clear cut. You can’t always just inject income and absorb losses.

    Secondly, using the trust in this way will likely effect your significant individual / small business participation percentage which is required to access the small business CGT concessions. It can be done but you need to monitor the annual distributions very carefully to ensure eligibility. We had a client recently miss out on the 15 year exemption on selling their business (tax free) because they failed the required 20% test in one or two years (of the fifteen). It was a very expensive mistake and thankfully not ours. A good lesson for anyone that pursues low cost accounting and tax solutions as a major criteria.

    Thanks James.
    There are no real assets in the Trust at present, so not CGT issue. But do you mean if the shares in the company end up being sold and any CGT on those?
    In anycase it is good advice and something to remember.
    Thank you.
    P.

    #1114361
    paranda
    Member
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    apj, post: 128391 wrote:
    Good information so far.

    You might need to check with your accountant whether your trust has made a ‘family trust election’ and, if so, you should be ok to access the losses provided your company makes an ‘interposed entity election’ to be part of the same family group.

    This is one of those instances you definitely need proper advice from your accountant as it could have implications many years into the future as already pointed out re: accessing small business CGT concessions. Owning shares in a trust doesnt necessarily exclude accessing these concessions however you need to ensure you have concessional stakeholders and so on.

    Cheers
    Aaron
    Thanks Aaron,
    No Family Trust Election at present as I understand it.
    Also the trust would not own the entire 100% of shares in the company as there are other people involved too. However it would have a large holding ie >50%.

    However I understand that to access the franking credits we would have to elect to be a Family Trust and the company involved would have to elect to be an Interposed Entity. Is that correct?
    Lots to consider.
    Thanks again.
    P.

    #1114362
    Lawyer-Matthew-1
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    Hi Paranda

    The Advantages of a trust include:

    •Ownership of the business by a corporate trustee provides asset protection and limits liability in relation to the business.

    •Trusts are very flexible for tax purposes. A discretionary trust provides flexibility in relation to the distribution of income and capital gains among beneficiaries.

    •Beneficiaries of a trust are generally not liable for the debts of the trust, unlike sole traders or partners in a partnership.

    •Beneficiaries of a trust pay tax on income they receive from a trust at their own marginal rates.

    •Generally speaking, the eventual sale of any capital assets of a trust (such as your business premises) will attract capital gains tax (CGT) on any positive difference between the cost of the capital asset and the proceeds received on disposal. However, trusts receive a discount on the amount of CGT payable on capital assets which have been held for more than 12 months.

    Feel free to contact me if you have any questions.

    #1114363
    Chris Brodie
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    paranda, post: 128405 wrote:
    Thank you – this is great. Can I ask why there still needs to be one retained in the individual name ?

    Hi, the short answer is to demonstrate ownership/control of the company and potentially (depending on your specific circumstances) obtain tax concessions.

    My best advice for you is to invest the time and money to obtain advice specific to your circumstances and accounting/structure needs.

    All the best,

    #1114364
    paranda
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    • Total posts: 20
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    Thank you everyone for the great advice.
    Will go talk to the accountant. Just wanted a handle on how it all works before I did. Thanks.
    P.

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