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DT to run a business

Discussion in 'Accounting, Tax & Legal' started by frankie, 18th Dec, 2007.

  1. frankie

    frankie Member

    Joined:
    14th Oct, 2007
    Posts:
    9
    Location:
    sydney
    Currently my husband and I are sole traders earning income from various businesses. We have been advised to set up a DT to run our various businesses through. The DT owns nothing. I have set up a shelf company as corporate trustee. I set up an ABN for the trust and backdated it to 1/7/07

    I wanted to start the DT from the 1/7 this year for ease of accounting and just put the money we earned to date into the trust.
    Now I am advised by OSR if I back date I will have to pay a penalty for delayed stamping of the trust ($200 in NSW plus penalty). Is this correct?

    Also if this trust didnt end up saving us money in tax I was going to close it and go back to our current situation. Again the OSR person claims that may be construed as "selling the business" back to ourselves and we maybe up for stamp duty...Is this a joke? There are no assets ie we dont own a premises and we only have family members as contractors assiting us with bookeeping admin etc. So is this correct?

    Last question - do we need to be employees of the trust or do we simply get a distribution for works undertaken. Similarly our parents who do the admin etc, do they need to be employees or do they also get a distribution?
    What are the implications/benefits of having them as employees.

    Thanks
    Frankie
     
  2. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Hi DT

    I guess you should ask yourself these question. "Is my business valuable? If so, what would you sell it for?"

    If the answers are anything other than no and zero then the OSR does have a point. You've effectively sold an asset (namely whatever comprises your business e.g. stock or customers list, right to receive income, perhaps a licence to produce copyrighted material, know-how, systems etc to another legal entity namely the corporate trustee of your trust.

    If you start running the business in your own names again then your trustee has reconveyed the business to you...another duty hit.

    Creating a trust by declaration is a legal action. It creates a legally recognised set of responsibilities around the trust relationship. You need to recognise that that has consequences.

    Sorry, that may not be what you want to hear but that's probably the strict position.

    I'd suggest you get some good accounting and legal advice about your best next steps.

    Cheers
    N.
     
  3. Saskatoon

    Saskatoon Well-Known Member

    Joined:
    17th Oct, 2005
    Posts:
    67
    Location:
    Aldgate, SA
    Hi DT,
    it seems that you may need to find out more about the benefits and disadvantages of using your Trust.
    I suggest you read Dale Gatherum-Goss' "Trust Magic" (do a search on this forum or the Somersoft forum Somersoft Property Investment Forums), find some information from Chris Batten at InvestorOne :: Home and also Strategic Wealth Management.
    Who advised you to set up the trust? Did they explain how to best use it?
    Usually, the main purpose of a trust is for asset protection, rather than saving tax
     
  4. Rob G.

    Rob G. Well-Known Member

    Joined:
    6th Jun, 2007
    Posts:
    717
    Location:
    Melbourne, VIC
    Whoever advised on the trust structure should also advise on the process by which it is created and assets transferred as the exact details can have very different effects.

    Of course you will have been advised on all your CGT as well as stamp duty liabilities before you started ???

    Cheers,

    Rob
     
  5. frankie

    frankie Member

    Joined:
    14th Oct, 2007
    Posts:
    9
    Location:
    sydney
    We havent had much luck with good advisors.

    Who can we contact to give us detailed advice in regards to setup and running of a trust to run our business. We havent had the deed stamped as yet and have only used the trust ABN on a couple of occasions.

    Does anyone on the forum have detailed knowledge in this regard?

    Thanks
    Frankie
     
  6. Nigel Ward

    Nigel Ward Team InvestEd

    Joined:
    10th Jun, 2005
    Posts:
    1,172
    Hi Frankie

    Nick Moustacas (NickM) of Strategic Wealth Management may be able to assist.

    Cheers
    N.
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,623
    Location:
    Sydney, Australia
    As mentioned by Nigel, our very own Nick Moustacas is an expert on trusts. Strategic Wealth Management
     
  8. frankie

    frankie Member

    Joined:
    14th Oct, 2007
    Posts:
    9
    Location:
    sydney
    I have just read the book Trust Magic. I do however have a few questions that remain unanswered and hope someone can assist me with these.

    If my husband and I set up a DT:
    1. As our turnover is low, we want to avoid employee relationships with the trust, can we just draw a distribution from the trust for our work done? Can we still claim all our deductions from this income?

    2. Our parents assist us with admin and bookkeeping, can we also pay them as contractors to the trust, with a distribution?

    3. What is a good clause to have in the DT deed, to say the deed can be altered without triggering resettlement, anyone have an example of this clause?

    Thanks
    Frankie
     
  9. taxstar

    taxstar Active Member

    Joined:
    9th Nov, 2007
    Posts:
    25
    Location:
    Sydney, NSW
    Here are views on your questions:

    1. It depends, if you can satisfy that the income is from you business, and not classified as PSI then you should be OK. You need to seek professional advice for your circumstances.

    2. If you structure your trust right you can make a distribution to them if they are beneficiaries.

    3. Hmm - need to see a lawyer about that one, because changing clauses in your deed could trigger a resettlement.

    There is another good book on trust from the Tax Insitute of Australia - Taxation Institute of Australia: Book and Online Publications

    I would stringly suggest finding a good accountant. They will be able to save you a lot of time on research.

    Warren