Business structure

Hello
I am purchasing a business and have been advised by 2 accountants to set up the structure as a trust with corporate trustee and by 2 other accountants that a company is fine. The 2 accountants who have recommended trust setup "specialize" in my profession. I am confused on what to do! I am currently single with no dependants. What is best for me now for the best tax benefits/savings? I know that later, should my circumstances change and I have a family, a trust setup is best as I will be able to distribute money to beneficiaries, but at the moment I am the only beneficiary (if I can be one?).
Please help!
thanks

 

The reasons why a trust may have been recommended is so not only can you potentially distribute to relatives (nieces / nephews etc) as well as the corporate beneficiary and save tax now - but also so in the future you may have access to the 50% discount when it comes time to sell your business. A company does have access to this.

I would go with a trust if your business may be sold in the future.

 

Thanks.
So if I am not planning on selling in the future and have no family, is it still best to have this set up now? I am aware of the tax benefits gained when selling using a trust setup. Who exactly can I distribute to and is this difficult to do? I always thought that it was only immediate family (children, siblings, parents)

 

Go with the trust.

In addition to having the general 50% CGT discount available on a future sale (plus all the other juicy small business concessions), you can also distribute to extended family such as uncles, aunts, nieces and nephews etc.

If you distribute to them on paper (i.e. your accountant does it on the tax return) but you don't physically give them the cash - technically they can come back later on and ask to receive it. I have seen it happen where parents have paid the kids small distributions over a number of years then they have a falling out and the kids get the idea to 'go' the parents for the money! Very rare this would happen though!

Another major advantage of a trust over a company is that you don't have to worry about debit (Div 7A) loans. This is where the amount you draw out of a company exceeds what you have put in - so you effectively owe the company money, and if you don't make the minimum principal and interest (specified by the ATO) repayments they will treat it as an unfranked dividend you you will pay a motza of tax.

Just be careful as this situation can occur if you do an on paper distribution to the trustee company but put the money back in your own pocket.

Your accounting / admin fees should be about the same either way.

Make sure you get a good well written trust deed (i.e. not some cheap job of a website) that takes into account recent technical changes regarding 'trust income' versus 'taxable income' blah blah blah - any reputable lawyer should be able to supply for a reasonable price.

Hope this answers your questions!

Good luck with the business - I hope you have done your due diligence