Business structure & tax strategies

By Ben Youn

Copyright 2014 Quantum Business House

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2 hours for each session

10 minutes tea time

Bathroom & Kitchen

Today’s Speaker

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Future Plan

- Business Forum

- Networking Events

- Business Mentoring


1. Setting up business structure (June 04) 2. Buying a business (June 11)3. Business Planning (June 18)4. Marketing (June 25)5. Raising Finance (July 02)6. Financial Management (July 09)7. Tax system and compliance issues (July 16)8. Risk management (July 23)9. Financial Health Check (July 30)10. Business Evaluation (August 06)



Sole Trader

Partnership

Company

Trust

Which one is best for my business?

- The answer depends on your circumstances! (See the attached)


Sole Trader

- Easy to setup (ABN & TFN)

- Combined income tax with the individual TFN

- Asset protection? – think again!

- Business Liabilities including employee’s wrongdoing – Owner’s Personal Liability

- Difficult to raise finance

- Difficult to sell the business when time comes.

- Higher tax rate (marginal tax rate)


Partnership

- Partnership agreement (essential)

- Splitting income between partners

- Partnership business loss can be offset against other income of the partner

- Each partner liable to pay tax

- Each partner holds liability for the partnership business (separately and as a group)

- Not a big deal for tax concession perspective

- Break Up – New partnership and capital gains tax


Company

- A separate legal entity

- Limited Liability for shareholders

- Director’s role and responsibilities (Corporations Act 2001)

- Company tax rate (currently 30% subject to be reduced down to 28.5% soon!)

- Financial reporting and audit obligation (tests)


Trust

- Unit Trust vs. Discretionary Trust

- No separate legal entity (except for GST)

- Trustee’s role and power

- Trust Deed

- Beneficial interest (Unit holders vs. discretionary beneficiaries)

- Why Trust?? – Flexibility & Asset Protection

- PART IVA of Tax Act (dominant purpose test)


Trust

- Two ownerships (legal ownership & beneficial ownership)

- Protecting trust properties (beneficial ownership)

- Income Splitting

- Trustee’s liability for business and reimbursement from trust property (trustee’s entitlement)

- But beneficiaries are safe from debts.


Trust

- Corporate Trustee: setting up corporate structure and ease of succession

- Costs

- Access to assets could be difficult


Family Trust

Unit Trust

Company 1 Company 2

CGT Tax Concession for Beneficiaries; “Flow through”

Company hold assets and Unit trust hold shares


Family Trust

Unit Trust

Company

1

Company

2

Bank

Loan

•Loan: Div. 7A•7 year repayments rule•Distributable Surplus

New investment


A New Company

Unit Trust

Company

1

Company

2Bank


Rollover of units for shares (Sub Div.124H)

Then tax consolidation

Conditions:

- Exchanging shares must be non-redeemable

- Must hold the same proportion of units & value in share


Spouse not exposed to business risks

Family law issue (family home is an asset of marriage) – legal ownership vs. marriage entitlement

Capital Gains Tax – Main residence exemption

A discretionary trust


Risk minimisation

- Business risks

- Default risks

- Personal guarantee

- Relationship breakdown

Tax minimisation

- Income tax and CGT (50% discount)

Answer: a discretionary trust


Negative Gearing Issue – The owner must ensure there is other income to offset the loss created by the negative gearing.


Please use us as free business adviser

Free Initial Consultation

Packaged Services with fixed fee


Buying a business

Business Planning

Marketing

Raising Finance

Financial Management

Tax system and compliance issues

Risk management

Financial Health Check

Business Evaluation
