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Family Trust or Hybrid trust

Discussion in 'General Investing Discussion' started by rajiv, 10th Sep, 2008.

  1. rajiv

    rajiv Member

    16th May, 2008
    Perth, WA

    If starting from scratch, which one is better? I am starting IT consultancy company that would generate revenue of around 70-90K by providing consultancy services. I am the only person employed by the company. Is it allowed leagally?

    I am thinking of setting up a family trust (not sure whether it should be family or unit or hybrid)? The company will be the trustee because as I understand the company structure is better tax-wise as opposed to individual trustee to the trust.

    Th issue of family v/s hybrid is relavant becaus I will be borrowing to invest in negative gearing properties.


  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    For starters, I would keep your business activities separate from your investing activities.

    If you get into trouble legally as a result of your business activities, you don't want to put your investment assets at risk.

    While a corporate trustee is ideal for a trust, you don't want to have this company trading in any way - its only function should be as trustee to the trusts. If you want to have a trading company, you may be better off to set up a second company with the trust as the shareholder - this way you can distribute company profits to the trust as dividends.

    If you are looking to only pay 30% tax on your investment profits, then you might want to look into a company beneficiary for your trust (the trustee does NOT receive benefits from the trust - unless it also happens to be a beneficiary, which you probably don't want it to be).

    The whole thing is rather complex - you really need professional advice to set up the entire structure.

    If the consulting work you are doing is long term contracts where you get the majority of your income from a single employer, then you will be caught by the personal services income provisions for tax purposes ... which means that you will effectively be taxed as an employee of the company you are providing services to. This was specifically set up back in the days to stop all the IT contractors paying less tax by setting up companies for their contract work.

    For a company setup to work, you need to be running a genuine business, with multiple clients and being operated in a "business-like" manner.

    More info: Step by step guide - personal service income