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HDT, DT and a Company

Discussion in 'Accounting, Tax & Legal' started by DaveA, 25th Oct, 2007.

  1. DaveA

    DaveA Well-Known Member

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    While not thinking about the accounting fees per year, would anyone thing the process will be good. Lets just say the HDT has no units issued (so it operates as a normal DT)

    A DT owns shares and is +ive geared, it then distributes this to a company at the end of the year (only franked and undisccounted gains, discounted gains go direct to an individual, or the negative geared trust).

    The company is owned by another negative geared trust. The company can then distribute to the negative geared trust (via distributions) to offset the negative geared.

    The only catch here is it would have to distruibute enough gains to the negative geared trust so it could distribute the franking credits out. Alternatively if i dont have enough in the company to distribute for the -ive trust to become +ive, i would just not distribute that year.

    Any flaws in the system?
    Could the hdt and Dt have the same corp trustee?
     
  2. handyandy

    handyandy Well-Known Member

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    Hi Dave

    In our case we have separate corporate trustees for each group. Obviously the corporate trustee is not the company we distribute to.

    All the share for the beneficial company are owned by another trust. Neither blanket trust nor the distribution company carries out any business, to avoid any liability exposure.

    Remember that the HDT/DT and corporate trustee carry out business by owning property etc. So we isolate this action from any accumulating income. Obviously the assets are still exposed but only to the extent of the assets. They have big paper loans:D.

    It does all get a little complicated, a bit like the chicken and the egg, to the point where at times I don't even remember all my entities names:eek: but this is mainly due to not using these entities on a day to day basis.

    As far as accounting fees we pay about $25-30k pa which considering the extent of the structure and our investments is not to bad (as long as my accountant isn't reading this ;))

    As mentioned elsewhere, it really comes down to where you want to go. When we started out everything was in our name with no structure. As a result to this day we still own properties in our own name.

    Cheers
     
    Last edited by a moderator: 26th Oct, 2007
  3. Rob G.

    Rob G. Well-Known Member

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    You only need $1 of net income to distribute the franking credits from a discretionary trust.

    If these go to a corporate beneficiary I am not so sure. Also, they can only be allocated to franked dividends at the benchmark rate. So not enough income to distribute means franking credits are stuck in the company.

    Your negative geared trust runs into loss problems if you don't distribute to it. Without a FTE this can become a real chore. With a FTE general running becomes a real chore !

    Watch out for unpaid present entitlements to corporate beneficiaries (Div 7A).

    Geberally poor practice to have the corporate trustee as a beneficiary, definitely not a primary beneficiary !

    I don't charge myself much in the way of fees, but it is still a hassle with related entities and overlap of laws (Tax, Trust, Corp laws).

    Glad I don't have to worry about other peoples' setups.

    Cheers,

    Rob
     
  4. handyandy

    handyandy Well-Known Member

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    Had to go and research this one just to make sure we are not doing this incorrectly.:eek:

    Everything we take out is taken as dividends or distributions that were derived from dividends, so all good (isn't it????):confused:

    You are certainly correct about the buildup of imputation credits but I guess one day we will get the benefits, particularly if they keep raising the individual tax rates.

    Cheers
     
  5. Rob G.

    Rob G. Well-Known Member

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    Fully franked dividends means no tax liability for the company.

    Another thing that catches people out is the 2 months 'grace' the ATO allows trusts to get their distribution statements in order. You cannot 'back-date' any flow-on distributions from the company as far as I am aware, although you could play around with interim distributions - gets tricky.

    This all means is that it is vital to see your Accountant BEFORE the end of the FY so he can make sure all loans are in order and distributions are effective.

    Cheers,

    Rob
     
  6. DaveA

    DaveA Well-Known Member

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    hi rob,

    sorry should of been more clear. the Corp trustee WILL NOT be a beneficiary. The beneficiary will be a seperate company (with shares owned by the trust)...

    Hmm yes didnt think about the credits need to be attached to dividends if going to a company, but this is why i wanted to raise it to get some of these things...

    Andy - would you mind detailing some more of how ur structures link together and why you have so many structures? Id imagine you distribute right up to your 30% tax limit? Have you got any loans between yourself and any of the trusts or company?
     
  7. handyandy

    handyandy Well-Known Member

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    Hi dave

    No we don't distribute right up to the 30% limit as we simply don't need that much to spend (I live a simple live ;)).

    Generally we simply draw money as and when we need it and I post this all to a personal liability account in the main trust's MYOB. The accountant then fixes it all up at EOY.

    Further we then move money around between the various companies which generally turns into loans. So this then gives a fairly thin balance sheet in the main trust as the assets are balanced by loans back to other entities.

    So for instance the excess income for last year was distributed to the corporate beneficiary as payment against the units held. (HDT) This income was then able to be reinvested where required.

    The loans I was referring to are inter company loans to ensure that the balance sheets that are building up are the least exposed to attack.

    Why so complicated?

    I really don't know apart from the fact that it has evolved over time. So really it has grown on an as need basis and as I became aware of what I wanted to achieve. This being to ensure that what we have built will allow my wife and I never to want for anything, to ensure that I can control the amount of income and in turn limit the tax we pay. With the ultimate aim to ensure that anything remaining, which should be plenty;) will pass to my boys with the least amount of dilution.

    Cheers

    PS I don't think that we have the absolute solution as we have some baggage and no doubt there are better ways but it presently does what I want.