Ed Chan

Discussion in 'Accounting & Tax' started by Jacque, 1st Feb, 2006.

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  1. TryHard

    TryHard Well-Known Member

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    Corporate structure etc

    I should have mentioned. Unfortunately I had not met Nick when we set up our structure, otherwise I would also own 1% of the PPOR and my darling spouse would have 99%. That is why I have won "Husband of the Year" award 6 years running ;-) The PPOR in my wife's name for asset protection, plus the fact she deserves it ... if only for ignoring the fact I don't really qualify as Husband of the Year.

    I hope I'm not a Director of a company that could run into trouble :eek: But yes I work in a high risk industry dealing with challenging issues - that's why I am sole director of the Company involved. Its completely unrelated to the property investments, intentionally.

    Having a corporate trustee of the HDT (of which I am the director) is intended to provide asset protection. Technically the Trustee could be replaced with another by the Appointor when necessary. Its my understanding this isn't black and white, and there is a lot more to it, but I went with the structure because it was common and seemed to make sense at the time.

    Disclaimer :
    I think like all things, you need to set up what's right for your own personal circumstances. And I'd strongly recommend a consultation with NickM - its vastly better value than trying to work it all out yourself - I can tell ya from experience ;-)

    Cheers mate
    Carl
     
  2. Nigel Ward

    Nigel Ward Well-Known Member

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    Provided you haven't given a directors personal guarantee of your company or trust's obligations then the likelihood of the corporate veil being lifted to expose the directors to personal liability is fairly low.

    Sources of risk are essentially insolvent trading and deliberate breach of trust where the trust assets are insufficient (i.e. s197 corps act - about which see our note http://www.invested.com.au/education/content/trustee-directors-liability-update

    So don't panic. I won't put in a link to the articles of that title :D ;)

    Cheers
    N
     
  3. TechMan

    TechMan Well-Known Member

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    Thanks for the advice. I think its still a little early for me to consult with Nick in depth as i dont own any properties yet. I actually had a quick talk to him in an afternoon tea break during the NavraInvest course i mentioned earlier. But am just gathering information before i embark.

    The 1%/99% ownership structure is interesting. Im assuming that this percentage is outlined in some form of legal document? When you place names on the property title does this percentage need to be stated? Basically what is done to put this in place as it sounds interesting.

    Are you saying that when you are a director of a company and have not given a directors personal guarantee to the company, that if a customer sues you, that your investments in personal name are not at high risk. Or that if you also have a trust in place for your investments that they are not at high risk. A little confused :confused:
     
  4. TryHard

    TryHard Well-Known Member

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    Good idea - I always like to attack the high-powered guys when they have a cup of coffee and biscuit in hand, means they can't record how much time they spent ;-) (Of course, Nick's not like that :D )


    Oops, looks like I should be making more use of the Pedia. Thanks Nigel - I've printed that for wine o'clock tonight ;-)
     
  5. Jacque

    Jacque Jacque Parker Premium Member

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    I love it :)
    I can just see you now, Carl, with glass of red in one hand and Nige's article in the other. How sophisticated!
     
  6. hillsguy

    hillsguy Well-Known Member

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    OK - I have to ask the question again.

    Assuming I have no business nor have plans to purchase any. I still am struggling with the question - why would I look at investing in IP's in a trust other than for asset protection.

    Is there another reason ?
     
  7. BSB

    BSB Active Member

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    Is Ed any relation to Jackie? :- D
     
  8. Simon Hampel

    Simon Hampel Founder Staff Member

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    If you are making money from your investment portfolio (which is, after all, the whole point of it all !!), then there are some quite nice tax benefits to holding assets in some form of discretionary trust where you get to choose who the income and capital gains gets distributed to.

    This means that you can have the investment income go to the lowest income earner in the family and therefore pay less tax. Same with capital gains.

    If you hold assets in your own name - you don't get a choice.

    Consider this: if you own an IP in your own name and it eventually becomes cashflow positive, or you sell it and make a capital gain, you don't get a choice - you have to pay all the tax yourself !!

    It gets much more complicated when you start to consider the different types of trust structures now available.
     
  9. TryHard

    TryHard Well-Known Member

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    LOL !! Sophisticated - not THAT is a word I have never heard used to describe me before :rolleyes: Thanks Jacque ! (I think the fact the red is coming from the 4 litre DeBortoli cask until the next NI distribution, might erode some implied sophistication :D )
     
  10. TryHard

    TryHard Well-Known Member

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    In addition to Sim's comments, you might need to minimise Land Tax, so when the Trust's property portfolio reaches the threshold, you invest in the next property via a new Trust. I dunno if the land tax issue alone would justify the reasonable efforts and yearly expenses of running the trust (and corporate trustee if so structured) unless there was a lot of property involved. But if that was combined with the need to distribute income flexibly to beneficiaries, (and the fact you can add beneficiaries at a later date) it might suit.

    Probably depends a lot on an investor's personal situation. Only reason I set up that way was everything I read said "Begin with the end in mind" ... and as my "end" wanted to have 12 or so good (and eventually cashflow positive)properties, I didn't see myself having those farmed out between our personal names and trying to manage the tax implications.

    Cheers
    Carl
     
  11. Nigel Ward

    Nigel Ward Well-Known Member

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    Sim' has already mentioned flexibility - which is really the key one.

    But it can also make it easier to transfer your assets to the next generation.
     
  12. Nigel Ward

    Nigel Ward Well-Known Member

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    The key question is to identify who's doing what here. Assuming:

    1) the customer deals and contracts with your company
    2) the customer can then only sue the company
    3) the customer can only recover up to the amount of assets in the company

    That limitation of liability principle is the cornerstone of company law. The company, legally speaking, is an entirely different person from you.

    Your personal assets and those held in trust (the trustee of which should definitely be a different company from your trading company!!!) are not open to attack by that customer because the person the customer deals with is the trading company.

    It is true that directors can be personally liable for insolvent trading but that's very unlikely to be an issue with everyday business transactions with customers.

    On the flipside, the reason you often have assets in trust is that if someone sues you (eg you run over their cat etc) then the assets aren't yours in this case either.

    Does that clarify things?
     
  13. TechMan

    TechMan Well-Known Member

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    Actually, that really does make sense. The last two points i think are great points to understand for anyone in business or who holds quite a bit of property.

    Thanks Nigel for your quick and to the point response!

    Any takers on my other query?

     
  14. Nigel Ward

    Nigel Ward Well-Known Member

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    It is shown on the transfer form as 1% high risk 99% low risk.
     
  15. kennethkohsg

    kennethkohsg Well-Known Member

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    ********************************
    Dear Nick,

    1. What is the rationale underlying your arrangement?

    2. Do you continue to enjoy the PPOR-Capital Gains Tax Exemption benefits since the house is not fully owned by you and trusts are involved? If yes, why?

    3. Looking forward to learning from you, please.

    4. Thank you.

    regards,
    Kenneth KOH
     
  16. kennethkohsg

    kennethkohsg Well-Known Member

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    ************************************

    Dear All,

    1. If we choose to own the PPOR in tenancy-in-common ownership arrangement instead of joint ownership, what are the implications for the lending banks and on our borrowing capacity?

    2. Do we need to apportion the borrowings on the basis on the house tenancy-in-common proportionate ownership?

    3. How are there reflected in the bank mortgage documentation?

    4. Have anyone done this and share with us his/her personal experiences, please? What do the experts in this forum say then?

    5. I look forward tp learning from each one of you from your subsequent contributions, please.

    6. Thank you.


    regards,
    Kenneth KOH
     
  17. TryHard

    TryHard Well-Known Member

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    Hi Kenneth

    From memory on Nick's presentation the suggested structure is PPOR 99% spouse's individual name, 1% your name. The 'rest is in Trusts' I think relates to investments.

    Just a guess .. I'm sure Nick will clarify :)

    Cheers
    Carl
     
  18. NickM

    NickM Well-Known Member

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    yes carl that is correct

    Sorry for the ambiguity

    the ppor is owned 1% me - 99% spouse (lower risk)

    other investments are held in trusts

    NIckm
     
  19. TryHard

    TryHard Well-Known Member

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    And my wife says I don't listen !

    ... I'll print this thread to prove I did listen... (once, to someone else ;-) )
     
  20. Soy

    Soy Well-Known Member

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    asset protection

    Hi all,
    Since we already have our PPOR under husband & wife name (50/50) and would be expensive to change ownership %, lawyer recommends to set up a new trust, hubby will give to trust as gift then he will take a mortgage of the same amount back from trust. The cost will be mortgage stamp duty (+ lawyer fee of course).
    Husband is director of company trustee of trust where IPs are.
    Any hole you can see ?
    Ta
     

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