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Private company and its shares(share type)?

Discussion in 'Accounting, Tax & Legal' started by Poweregg, 4th Nov, 2011.

  1. Poweregg

    Poweregg New Member

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    21st Dec, 2007
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    Hi All,

    I 100% own a private company with 100 shares, now I wish my parents can receive some dividends as they have no income.

    I notice there are lots type of shares. like
    type I: no vote, no equity, dividend only

    I want my parents received dividens but I still want control my company, is I should issue "type I" to them?

    Like I issue 400 "Type I" shares and the profit of my company(after 30% tax) is $500, then

    I can receive $100 dividend
    my parents can receive $400 dividend

    As they have no other income, they even can claim the frank credit from ATO.

    a) Is my understanding right?
    b) Is there anything I need care when I issue the 400 "Type I" shares?
    c) If I want cancel the 400 "Type I" shares, what can I do?

    Hoping someone can give me some advices/tips:)

    Cheers:)
     
  2. Terryw

    Terryw Well-Known Member

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    Good idea to use a discretionary trust as shareholder.
     
  3. GregR

    GregR Reid Consultants

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    Berwick Vic
    There are a lot of ways to give your parents funds - shares seem to be a more complex way to do it. There could be Centrelink asset test issues doing this.

    You could simply put them on the payroll as a casual and depending on the income/wage and your company, you may be under some of the thresholds for additional costs of payroll tax, superannuation etc.

    They could provide 'services' to your company and produce a tax invoice and if under $75k pa, no GST involved.

    You could just gift them funds from your own after tax income or savings. I have heard of private companies simply providing a company credit card and then paying for the purchases on the card. You need to work out the FBT implications (or not) of such a method.

    Terry's suggestion of a discretionary trust has validity and flexibility.
    Greg
     
  4. Terryw

    Terryw Well-Known Member

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    Hi Greg

    It turns out from another forum (somersoft) that this company is a bucket company beneficiary of a trust. Its only role is to receive excess funds from the trust. The poster's accountant suggested this is a way to avoid having centrelink see the parents as part of the trust and assessing the trust as their own assets. The parents could transfer shares to the son on their retirement having no further control or input.

    I am not sure this will work however as they will be assessed as controllers of the company and all its income and assets (nil probably) would be assessed as their own. This continues, I think, for up to 5 years after the transfer.
     
  5. Poweregg

    Poweregg New Member

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    Thanks Terry & GregR

    As GregR mentioned, share could be centrelink asset test issues... this is why I do not put my parents into a family trust...

    My parents have no income now so I want use their TFN to reduce the tax payable:
    0-6000 no tax, 6k~37k 15% tax, much lower than company tax 30%

    When they reach their retirement age, I don't want reduce their persion...

    Maybe I will considering put them as employee or ask them to register an ABN and providing "service" to my company...

    Thanks:)
     
  6. Poweregg

    Poweregg New Member

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    Yes, Terry

    I just noticed they are a bit similar, whether you are in trust or company shareholder...

    Control Test...they don't have over 50% shares,should be ok

    Source Test....If they sold their share to me, didn't mean they transfer assets to company...should be ok

    Resignations....this is what I wonder...like if they sell their shares to me at a fair price...did this still means they relinquish control of a company?

    ATO & Centrelink is so strict, must be planned carefully...

    If I put my parents to my family trust and cause them can't receive pension when they retired...they must kill me:eek:
     
  7. Terryw

    Terryw Well-Known Member

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    Have a look at s1207q ssa
    SOCIAL SECURITY ACT 1991 - SECT 1207Q Controlled private companies

    Look at the definition of associate too, click on the word, it includes relatives. So if a relative is holding the other shares they would fail the control test I think,
     
  8. Poweregg

    Poweregg New Member

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