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BRISBANE ACCOUNTANTS / MORAYFIELD ACCOUNTANTS
ATO CHOOSING THE RIGHT BUSINESS STRUCTURE
COMPANY STRUCTURES
TRUST v COMPANY
There are many different reasons entities have different structures.
SOME BUSINESSES AND GOVERNMENT DEPARTMENTS WILL ONLY DEAL WITH COMPANIES OR COMPANIES AS TRUSTEE FOR A TRUST
ASSET PROTECTION
Lawyers usually give asset protection advice to individuals who wish
to protect existing assets eg their homes.
Setting up trusts with companies as trustees may help but you are
best to get advice from lawyers who specialize in this area.
TRUST SET UP COSTS $550
TRUSTS ARE FLEXIBLE
Owners may distribute profits to themselves as beneficiaries once
all workers including the owners pay themselves a market rate.
Owners can pay themselves wages or distribute income. There are
great benefits for employees with overnight travel expenses
resulting in reduced record keeping and with capital gains being distributed to individuals
who may get a 50% discount.
Trusts are very flexible for small businesses whose turnovers are <
$2,000,000. Capital gains on goodwill may be distributed to
beneficiary individuals who may receive the 50% exemption on assets
held for 12 months, 50% active asset discount and 50% 15 year
exemption rule.
COMPANIES SET UP COSTS $200 + ASIC FEE $426
DIVISION 7A
Directors can not have a debit loan account. Division 7A will deem
these loans to be dividends unless an appropriate loan repayment
agreement is in place.
Owners can repay credit loan accounts tax free but any other
payments must be declared by the owners as either wages or dividends
both fully assessable in their individual tax returns.
CAPITAL GAINS
Therefore any capital gains from goodwill or asset sales in a
company will receive discounted rates only to find that a company
must pay this as dividends or wages which are fully assessable to
the receiving entity.
If a company is wound up these amounts are usually deemed dividends.
You may receive a CGT superannuation retirement exemption up to $500,000.
ACCOUNTING FOR TRUSTS AND COMPANIES
You must prepare a Profit and Loss and
Balance Sheet each year.
You must lodge a Trust or Company Tax
Return for your sales are < $1
TAX MINIMIZATION AND PART IVA
Under the latest tax cases the purpose for setting up any structure or scheme can not be to for a tax benefit.
As the Commissioner of Taxation has commented:
"The particular significance of the Spotless decision is that the
High Court has confirmed that "a person may enter into or carry out
a scheme, within the meaning of Part IVA, for the dominant purpose of enabling the
relevant taxpayer to obtain a tax benefit where the dominant purpose
is consistent with the pursuit of commercial gain in the course
of carrying on a business". Had Spotless been
lost a gaping hole would have appeared in the protection offered by
Part IVA.
In doing that the High Court has also confirmed that the application
of Part IVA is not to be determined according to whether you bring
the arrangements under a particular commercial, business or other
categorisation. Rather the application of Part IVA is to be
determined by an analysis of the factors set down in section 177D.
This requires consideration of such issues as the
manner in which the scheme was entered into, the form and substance
of the arrangements. And in this regard the degree of contrivance, artificiality and
elaborateness of the transactions will be relevant."
Google ATO Part IVA
Disclaimer
The information provided in the above documents is not intended to
be, nor should it be construed as tax advice. Any specific
recommendation for a client can only be done after their individual
circumstances have been determined by David Douglas Accountants.