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Company as Trustee v Company with shares owned by Trustee

Discussion in 'Accounting, Tax & Legal' started by Terryw, 22nd Apr, 2011.

  1. Terryw

    Terryw Well-Known Member

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    Sydney
    Can anyone please point out any tax or legal differences involved with operating a busines through a company as trustee of a discretionary trust v a company with the shares owned by a discretionary trust.
     
  2. tax guy

    tax guy Member

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    Sydnye, NSW
    Company with Trustee

    The trust is the taxable entity. Trust works out net income and distributes to beneficiaries.

    Trust holds shares in company

    The company is the taxable entity. Company is taxed at 30%. Any dividends are distributed to the trust and the trust then deals with it in their own hands.


    Need to consider capital gains. Under the company as trustee structure, the trust beneficiaries are still able to access the CGT concession if they are entitled to claim as individuals.

    Where the company incurs capital gains, no discount is available.

    They operate very differently from a tax perspective, but generally achieve the same from an asset protection point of view
     
  3. Terryw

    Terryw Well-Known Member

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    Thanks tax guy. CGT is important to consider.

    Besides CGT can you think of anything else?
     
  4. Rob G.

    Rob G. Well-Known Member

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    Location:
    Melbourne, VIC
    1) Company carries on business with own name and owns assets.

    Creditors can access assets.

    2) Company carries on business as trustee, and trust owns assets.

    Creditors can access assets via subrogation.

    If trust deed excludes trustee's right of indemnity then directors liable.

    Trust can access general CGT discount.

    3) Company carries on business, but leases assets from a trust.

    Assets not beneficially owned by company, nor any rights owned by company.

    Trust can access the general discount.

    4) Note that in reality, there is much more to consider. A company is a very flexible vehicle for introducing new equity, passing interests to others and sharing the benefits between disparate stakeholders.

    The small business concessions have greatly reduced the CGT disadvantages of a company and the rollover provisions make it very easy to interpose a company before spinning off interests.

    Cheers,

    Rob
     
  5. DrJohns

    DrJohns Member

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    Adelaide, SA
    Should also point out that if the trust owns the company shares you do not need another company to act as trustee since as merely a sharholder, the trust has no liabilty so individual trustees are fine. Both setups therefore cost the same.