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Moving money from company to a trust

Discussion in 'Accounting, Tax & Legal' started by Olga Anderson, 16th Feb, 2019.

  1. Olga Anderson

    Olga Anderson New Member

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    We have recently paid off our mortgage and are looking at a different way of investing/managing our money. I have a full-time job plus a business registered as a company. My husband operates as a sole trader. Our taxes are already high, so we are thinking of setting up a family trust to invest my company profits (do you think it's a good choice?).

    What I don’t understand is how to move money from my company to the family trust.

    I imagine it can be done as a ‘loan’, but does it mean I need to move the money back to the company each year before June 30th for accounting purposes? This would not be ideal, as we were thinking of investing in shares, which only makes sense to do long-term.

    If the money is ‘gifted’ to the trust, will the trust have to distribute the money that year as it’ll be considered ‘profits’?

    I guess, what I’m asking for is there a way to move company money to the trust without having to return it to the company each year at the end of the financial year OR without having to distribute that money each year?

    We are still researching the topic, so any insights/tips would be greatly appreciated!
     
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  2. AnthonyKing

    AnthonyKing Active Member

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    Dear Olga, (Anderson)
    Here below are your queries and some general notes that may assist to get started with your planning.

    We have recently paid off our mortgage and are looking at a different way of investing/managing our money.

    1. Note Q and A means question and answer

    2. Q: I will assume that this debt was for your home residence property

    3. This query needs more information such as ages and differences in income levels, and are there any dependent children or adults?

    I have a full-time job plus a business registered as a company.

    4. A Company pays high tax rates with no tax threshold and has poor asset protection. If you and partner are the shareholders it opens a “back door” to company assets and has no discounts for Capital Gains Tax. The proposed Labor Party changes to company Dividend imputation may make companies even more unattractive.

    5. Q: Is the company business in profit?

    My husband operates as a sole trader.
    6. A: This is bad for your asset protection and tax planning, so is your company.

    Our taxes are already high, so we are thinking of setting up a family trust to invest my company profits (do you think it's a good choice?).

    7. Family Trusts must distribute all profits each year to beneficiaries or pay highest personal tax rate on undistributed profits, currently 45%. PAYG tax may also be due quarterly in advance for the following tax period.

    8. A: A better trading choice would be a special purpose Fixed Unit Trust in which your family SMSF is invested. The FUT pays no tax and max. tax rate in SMSF would be 15% or 0% depending on whether fund Members are in Accrual or Pension mode.
    This FUT structure has strong asset protection because the only access into the trust is via the SMSF which is almost impregnable – Check Bankruptcy Act Subdivision B Superannuation Contributions. You could also re-invest after tax profits into units into the FUT indefinitely.

    9. Note: To make this work you would need an advanced unit trust structure so that no In House Assets are created.

    What I don’t understand is how to move money from my company to the family trust.

    I imagine it can be done as a ‘loan’, but does it mean I need to move the money back to the company each year before June 30th for accounting purposes? This would not be ideal, as we were thinking of investing in shares, which only makes sense to do long-term.

    10. A: Any loans to the trust would be subject to a Div 7A loan agreement and must carry interest which the trust would pay to the company or yourselves – increasing your taxable income and reducing your Family Trust profits. The interest paid should be tax deductible in your company return or your personal returns.
    Google: ATO Div 7A loan agreement and read the tax rules.

    If the money is ‘gifted’ to the trust, will the trust have to distribute the money that year as it’ll be considered ‘profits’?


    11. One way is to “gift” money at trust settlement although it would generally attract Stamp Duty costs unless the trust was settled in a non duty State such as Queensland.
    Settlement money from all sources forms part of the establishment and operating capital of the trust and can remain in the trust indefinitely.

    12. Another solution is for the trust to add capital by borrowing from an unrelated bank lender on commercial terms.

    I guess, what I’m asking for is there a way to move company money to the trust without having to return it to the company each year at the end of the financial year OR without having to distribute that money each year?
    See Notes 11 and 12.

    Good Luck Olga!

    Anthony King
     
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  3. Olga Anderson

    Olga Anderson New Member

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    Thank you, Anthony! :)

    We live in NSW (Sydney).
    A naive question: can we register and settle a trust in Queensland while residing in Sydney?

    SMSF may not be ideal for us, as I work in a University, and we have to use an industry fund- UniSuper. My husband uses HostPlus with a low fee option, and is pretty happy with it. Taking SMSF out of the equation, is there a benefit of using FUT over a Family Trust? Do the same rules of setting the trusts apply to FUT and Family trust?

    Answering your question: I'm 37 and my husband is 40. We have a toddler and plan to have more kids.
     
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  4. AnthonyKing

    AnthonyKing Active Member

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  5. AnthonyKing

    AnthonyKing Active Member

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    Dear Olga
    Sorry I am slow to reply - not ignoring you just busy.

    Yes you can but to do so you need a QLD bank account for the settlement money we have been using this system effectively to establish all kinds of trusts since 1996 and savings in NSW are about $530 in stamp duty which is greater than the cost of a trust.

    I understand now that SMSF does not suit you but it is the most tax effective.
    A family Trust is not the most effective but can maybe still save you some tax if you have enough human family beneficiaries, however if you distribute the money to them it is legally their money.
    You could also use a Bucket Company - company beneficiary which will generally be taxed at 30%.
    So it may not save you much and generally it works best if your personal incomes are generated in the FT.
    Good Luck In Your Quest Olga!
    AnthonyK
     
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  6. Terryw

    Terryw Well-Known Member

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    Olga, many legal issues to consider, seek specific legal advice.

    Who is the shareholder of the company? A companies profits can be paid out to the shareholders only. The issue then is if dividends are paid to the trust, the trust must distribute this income or be taxed at the top marginal tax rate. There is where a bucket company can come into play, but make sure the shares of the bucket company are held in a different discretionary trust.

    A company can gift money and this could be to a trustee, but there are many legal and tax issues involved with this and it is probably best avoided.
    A company can lend a related trust money, but Division 7A will apply and minimum interest rates need to be charged.

    A simpler solution may be for an individual to gift money to the trust. make sure any gift is properly documented. There are no duty consequences to gifting cash after the trust has been establised. Consider all the estate planning consequences of this. An alternative is an interest free loan to the trust - again seek legal advice.

    If a trust deed is executed in NSW then NSW duty of $500 will apply. There is no duty on trusts executed in QLD or SA, but both parties to the deed would need to be present in that state when signing. Bank accounts don't come into it, so I am not sure what Anthony means here.
     
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  7. AnthonyKing

    AnthonyKing Active Member

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    Dear Terry and Olga
    Re.: QLD Bank Account.
    My response when I am Not Sure or do not know something is to ask a question.
    Whats yours?
    Cast doubt?
    Assume solicitors are the font of all wisdom?
    That is an obvious weakness IMO.
    Regards To All
    AnthonyK
    .
     
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  8. Terryw

    Terryw Well-Known Member

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    Not sure what you mean AnthonyK?

    I would like to know what is the legal basis for suggesting a QLD bank account is needed?

    Legal advice should be sought from lawyers.
     
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  9. Luke83

    Luke83 Member

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    i am 2-3 years away from being in the similar situation as Olga ( House will be paid off and i want to redirect that money to other investments). I also have a Hobbie that increasingly looks like its becoming a business so i think i should bite the bullet, form a company or soletrader and pay some tax on it ( so i can then also direct that income to investing).

    I have not actually seen my Accountant in 5 years as they just send me the Tax forms to sign and return each year but this year i was going to ask for a sitdown... Is an Accountant the best person to speak to about:

    • Best structure to minimise tax option to put the return from my Hobbie/.Businees through that will minimise tax ( i am happy to pay the 30% if i must but no more). Currently i earn approx 80K per year @ work but my hobbie looks like it could increase that by another 10-15K easy if everything keeps going the way it is.
    • Best option to invest through each year, want to just buy shares and reinvest all the profits for next 20 - 25 years and retire slightly early ( 55 is target). We already have a investment property and at some point in the future i should inherit another one ( all most of one at worst case) so Shares look like next thing i should focus on building.
    • Is there a way to keep my Business and investment entites separate for the purpose of litigation? There must be some rich people loop hole they use to protect there money ?
    Not sure if i need an Accountant or a Solicitor or both :)

    I also dont want to channel into SMSF as i want the money before legal retirement age ( plus by the time i get there retirement age will be 75 so better to plan on leaving work early).



    a Bucket Company was mentioned above, that sounds like the kind of thing i am after - company beneficiary which will generally be taxed at 30%.
     
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  10. Terryw

    Terryw Well-Known Member

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    An accountant that is tax agent could advise on the first 2 options, but the 3rd one is legal advice so you will need a lawyer for that plus the legal aspects of trusts and companies. If you want advice on placing money in super you would need a financial adviser with an AFSL or authorised rep status.
     
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