Does your trust need a corporate trustee or a corporate beneficiary?
There are a wide variety of diverse business structures that exist in the current environment and this can be the cause of much stress and confusion for many business owners. However, it need not be this way. The best structure for your business is generally determined by what your main intentions or desires are for both the short term and long term. This could be for asset protection reasons, optimizing tax effectiveness, or a combination of the two, or perhaps even something else altogether.
What should you choose?
The best way to determine which structure is best for you is to speak with your professional business advisors, including your accountant and tax lawyer as well as any other financial advisors that you might have. Your advisors will be able to work with you to devise the best business structure that will meet your intentions and the needs of the business.
One of the most common ways of using a business and trust structure is to have a family trust. Perhaps the main benefit of a family trust is that at the end of each financial year you are able to nominate which beneficiaries are to receive proceeds from the trust as well as how much each will receive. Of course the money never actually leaves the trust, but profits must be distributed and they are immediately re-invested back into the trust.
The benefit of this arrangement is that this allows funds to be distributed to those beneficiaries with the lowest income levels and therefore less tax is paid. For example, it may be ideal to direct proceeds to the younger members of the family or non-working spouses as their income will be in the lower range marginal income tax brackets.
Alternatively, if all of the beneficiaries of a family trust are earning significant amounts of taxable income then it may be beneficial to have a corporate beneficiary of the trust. In this situation, any proceeds that are allocated to the corporate beneficiary are taxed at the Company Tax rate of 30% as opposed to the higher marginal tax rates that may be applicable for individual beneficiaries. For example, if the individual beneficiaries are in the top marginal tax bracket a significant 15% could be saved off your tax bill.
You may also elect to have a company as the trustee for your family trust. This ensures that the trust is not owned or dictated by one individual but rather it is overseen by all directors of the company. In this arrangement all of the assets of the trust are legally held in the business name. This provides a level of asset protection for the trust and its assets as should the company or any individuals come into financial trouble the assets of the trust are secure and unable to be touched by any debtors.
As you can see, there can be significant benefits in adopting trust arrangements into your new or existing business structures. Family trusts, corporate trustees and corporate beneficiaries are just one slice of the pie. With the right advice and by implementing the optimal arrangement for your individual situation you can not only potentially reap the benefits of significant tax benefits but also secure the ongoing stability of your business and financial affairs.
Contact the team of professional lawyers and accountants at The Quinn Group to discuss the best business structure options for your business. Whether it is changes to existing structures or advice for new or proposed ventures we will work with you to ensure that your affairs are structured to work towards the goals you desire. Call us on 1300 QUINNS or click here to submit an online enquiry.