FREQUENTLY ASKED QUESTIONS (FAQ'S)

• COMPANIES
• TRUSTS
• SUPERANNUATION
• TAX MINIMISATION & ASSET PROTECTION
• WILLS
• POWERS OF ATTORNEY

COMPANIES - FREQUENTLY ASKED QUESTIONS

What is a Company?

A company is a separate legal entity from the owners. It can sue and be sued in its own name separate from the person who owns it. It has limited liability for its debts. A company can either be a public company like BHP or AMP (Ltd) or a private company (Pty Ltd).

 A company is run by it's directors. It is owned by it's shareholders.

Can you give me an Example?

Let's assume that John Smith sets up Smith Pty Ltd. John Smith makes himself the director who runs the company. His wife Mary Smith is the shareholder.

John Smith Pty Ltd enters into contracts in its own name. It is liable for the debts. Apart from some exceptions, John Smith is not liable for the debts of the company; only John Smith Pty Ltd is liable for the debts. And Mary Smith is not liable as she is a shareholder and has limited liability, ie. limited to the amount of unpaid amounts owing on her shares.

I have heard that a Company is a great way to Trade Options or Buy Property as tax is limited to 30%. Do you agree?

A company does have some benefits.

1. It is a separate legal entity from the owners. This means it can sue and be sued. This gives great protection of your assets held in a company. Because your company is a separate legal entity, if someone successfully sues your company, it does not mean you have to pay the bills. In many cases you will not. It will depend upon whether you breach certain duties under legislation.
   
2. Companies are taxed at 30%. Individuals pay tax up to 48%. You can accumulate profits in a company and pay tax at no more than 30%.
   
3. Companies also allow some income splitting. Depending upon who owns the shares, depends upon who gets the income from the company. You can also issue preference shares to improve things even more.
   
4. Companies can be a trustee for a family trust. This gives an extra level of asset protection for you with your assets.

However, there are some problems with companies. To give three examples:

1. Although tax is only 30%, the moment You pay out the profits to shareholders, the shareholders are taxed at their top tax rate. So companies only work if You are accumulating the profits, not if You are paying them out. But we can show You a few techniques to overcome this problem.
   
2. You can't even loan the money out of Your company to avoid the high tax rates. People used to do this but the Tax Office has changed the law to stop You doing this. If You loan the money out of Your company, there are strict rules that You have to comply with.
   
3. If You hold assets in Your company, when You sell the assets, You don't get the capital gains tax concessions. This is a real problem with buying real estate in a company. Companies are not a good structure for real estate.

Ultimately it does depend upon circumstances. Arrange Your FREE* consultation and we will see if a company will work for You. But in our view, a trust is usually the better way to go to trade the stock market or buy property.

When should I set up a company?

In our view, You should set up a company only in four situations:

1. As a corporate trustee for Your discretionary trust.
   
2. To accumulate income. That is, companies are taxed at 30%. Individuals pay tax up to 48%. You can accumulate profits in a company and pay tax at no more than 30%. However, as a company can be a beneficiary of a discretionary trust, subject to 3 and 4 below, You should simply set up a trust and a company as a beneficiary of Your discretionary trust.
   
3. If You are a contractor who contracts out Your own personal services for income. For example, if You are an engineering or roofing contractor, You are not allowed to split income through a trust or company. At best You can accumulate income, and even this is dependant upon You receiving not more than 80% of your income from the same client.
   
4. You are required to set up a company due to the nature of the industry You work in. For example, some network marketing companies require their product distributors to use either their own name or a company; a trust is not allowed. Similarly some professions will not allow their members to set up their business structure through a trust.
   

How much does it cost to set up a Company?

If You purchase the company with a trust, we have package deals for traders and property investors, or for traders and investors who buy multiple structures. Contact our Tax Specialists NOW to receive more information. 

Should I set up my Company before Trading or Buying Property?

Most certainly! Once You start doing things a certain way, it becomes harder to change it later on. There are rules about changing Your business structure to avoid tax or stave off creditors. It can be done, but it is more expensive and more risky.

So, contact us NOW and we will get things moving for you!

I already have a Company which I use for my Business. Can I just use that?

Definitely not! If someone sues you in your business, all assets in the company are at risk. You must do your trading in a separate company, otherwise all your trading capital is at risk if you get sued in Your business.

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TRUSTS - FREQUENTLY ASKED QUESTIONS

What is a Trust?

A trust in its simple form has a settlor, a trustee, and beneficiaries. The settlor sets up the trust. The trustee manages the trust property (investments, assets, etc.) and pays out any net income for the benefit of the beneficiaries.

Let's give a simple example of a trust. I transfer my car to You as I am going away for 3 years. During that time, You can drive it, do what You like with it. But after 3 years, You must transfer the car to my mother. We have a legal agreement. This is a trust. I am the settlor (as I created the trust), You are the trustee (as you are holding the car on trust for my mother) and my mother is the beneficiary (as she is beneficially entitled to the car and could sue you if You decide not to give the car to her down the track in 3 years).

However, at Tax Intelligence™ , we use family discretionary trusts. These are similar to the above but the characteristics are slightly different. To explain, the Settlor is an unrelated party, the Trustee is a company or Yourself, and the Beneficiaries are all Your family members, companies, trusts and charities. As the Trustee You can distribute the profits and the trust capital to whoever You want to, and in what proportions You want to distribute, that is, on a discretionary basis, as none of the Beneficiaries have a fixed entitlement or interest in the trust funds.

What are the elements of a discretionary trust?

It is fairly involved but to explain the main characters in a discretionary trust:

The Trustee is the legal owner of the trust property and not the beneficial owner. That is, in the car example above, the trustee's name is on the car registration papers, but legally the trustee does not own the car. The car is held on trust for the beneficiaries. The trustee carries out all transactions of the trust in its own name and must sign all documents for and on behalf of the trust. The trustee's overriding duty is to obey the terms of the trust deed and to act in the best interests of the beneficiaries.

The Settlor is the person who creates the trust by "settling" the initial sum of money to be held on trust for the beneficiaries. This is usually a nominal amount such as $10 to keep stamp duty to a minimum.

The Trust Fund is all the money and property held in the trust. This includes the settlement sum, accumulated income and any other money and property held by the trustee pursuant to the terms of the trust.

The Beneficiaries are the people (including entities) for whose benefit the trustee holds the trust property. The beneficiaries do not have an interest in the assets of the trust. Beneficiaries are eligible to receive a distribution of income or capital at the trustee's discretion. For example, in a standard discretionary trust, Fred Smith (as trustee) may hold the money and property on trust for his wife and children (who are the beneficiaries).

The Appointor is the person who calls the shots. The Appointor can hire and fire the Trustees. The Appointor is the really important player in the trust.

The Trust Deed defines the relationship between the trustee and the beneficiaries in a document setting out the rules and terms of the trust.

Some trusts also have a Guardian as well as an Appointor.

Do I need a trust to trade or buy property? Why not use a company?

In our view, there are only four situations where you should set up a company:

1. To be a trustee for your discretionary trust;
   
2. To accumulate income with a maximum tax of 30% (without drawing the money from the company; once you withdraw you pay the maximum tax anyway);
   
3. To contract out your personal services for income (eg. you are an engineering or roofing contractor who relies on your personal skill for income); and
   
4. To comply with industry requirements (eg. some network marketing companies require their product distributors to use either their own name or a company; a trust is not allowed).

Why would I set up a Trust?

Apart from the four situations above, trusts are the best structures to do business, especially stock market trading or property investing. Trusts have some wonderful advantages:

1. A trust has no set tax rate. You can give the trust profits to the persons or charity who is paying the lowest tax rate. Or if everyone is on the highest tax rate, You can give the profits to Your company.
   
2. Family discretionary trusts have great asset protection. Nobody owns the assets of the trust. The assets are held by the trustee and the trustee decides who gets the profits and who gets the assets.
   
3. Unlike companies, you are entitled to the 50% capital gains tax discount on any assets held for more than 12 months which You sell at a profit. This is a very important advantage for trusts who do hold real estate.
   
4. Unlike companies, You can loan money out of Your family trust. And You have no tax penalties.

 Do Trusts have any weaknesses?

 Yes, but only two weaknesses:

1. You cannot accumulate profits in a trust without paying tax. You must distribute the profits each year. However all You need to do is distribute the excess profits to the company anyway and cap the tax at 30%!
2. A serious weakness is trusts which buy heavily negatively geared property. Any losses from negative gearing cannot be claimed as a deduction but must be carried forward to offset against future income.

Apart from those issues, a trust is the best structure.

Can you give me an Example of how a Trust works?

I set up a trust (as the settlor) with Fred and Mary Smith as trustees. Fred and Mary have 3 children, 2 children under 18 and a 20 year old son (who earns $25,000 per annum).

Fred and Mary put $500,000 into the trust and trade options with it. They make $150,000 profit in the first year.

Fred and Mary can distribute the profit to themselves, to their children, their favourite charity, a family company, or to a mixture of all of them in any proportion they so desire.

For example, assume that Fred earns $100,000 (is on the top marginal rate) and Mary earns nothing. They may distribute as follows:

The tax savings are quite substantial as compared to Fred trading in his own name or even in Mary's name only.

 Do Trusts protect my assets?

Most certainly! Contact us NOW and we will help You set up trusts which will protect Your assets. We have some great structures we can implement immediately to protect Your assets and ensure that if Your business does get sued, Your personal assets remain secure. We even have some incredible techniques to protect Your business goodwill and business assets. For more information,

We also have package deals if You require multiple trusts for business or property buying, or for any other specific purpose. Should I set up my Trust before Trading or Buying Property?

Most certainly! Once You start doing things a certain way, it becomes harder to change it later on. There are rules about changing Your business structure to avoid tax or stave off creditors. It can be done but it is more expensive and more risky. Contact our Tax Specialists to assist You with restructuring NOW

 I already have a Trust which I use for my Business. Can I just use that?

Definitely not! If someone sues you in your business, all assets in the trust are at risk. You must do Your trading in a separate trust, otherwise all Your trading capital is at risk if You get sued in Your business.

If You have already started trading in Your business family trust, come and see us immediately and we will arrange a trust split, ie. we "cut" the trust in half to create two separate trusts, with minimal stamp duty and no capital gains tax.

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SELF MANAGED SUPERANNUATION - FREQUENTLY ASKED QUESTIONS

What is a Self Managed Superannuation Fund (SMSF)?

A SMSF is a superannuation fund which you manage Yourself. As a trustee of Your SMSF, You decide where to invest Your superannuation monies. You take control of Your retirement.

You are no longer dependant upon the conservative investing of fund managers and upon excessive fees.

Does this mean I can access my retirement monies early?

Definitely not. The restrictions remain the same.

That is, apart from exceptional circumstances, You cannot access Your superannuation monies until You turn 55 years of age. Even then, You cannot access Your monies until You retire from work.

Why would I establish a SMSF?

By establishing Your own Self Managed Superannuation Fund, You take control of Your retirement planning, You become responsible for Your own investment decisions and You become entitled to tax savings that You would otherwise not be entitled to.

SMSFs can also be used to protect Your assets to a limited degree. In many instances, assets held in Your SMSF cannot be touched by creditors in a bankruptcy petition.

Can I use a SMSF to trade options or do buy writes? What about futures or CFDs?

Yes you can trade options. However there are difficulties with futures or CFDs.

However, there are restrictions. You need to have a proper investment strategy and Your fund rules need to allow you to do it. Not only that, but there are other duties and requirements as to prudent investing which the law places on You.

It is important that You seek professional advice before doing any trading from Your SMSF.

Are there any restrictions in what my SMSF can do?

Your SMSF can invest in most investments, depending on Your investment strategy. Your SMSF can invest in such investments as shares, managed funds, property trusts, art, antiques and rare collections. And many other things too.

There are however a few restrictions. Your SMSF cannot borrow apart from exceptional circumstances. Your SMSF is limited in what it can trade, so You must always seek professional advice before doing any trading. Your SMSF must be set up for the sole purpose of providing for Your retirement. And your SMSF must not provide You with any financial assistance whatsoever.

How much should I have in superannuation before setting up a SMSF?

It depends entirely on the level of returns You can reasonably expect to generate per annum.

To give You an indication, it costs between $400 - $1,500 (depending on the level of investments and activities of the SMSF) to prepare tax returns and audit a SMSF.

As a general rule, you should have at least $20,000 before setting up Your SMSF. Ultimately You need to calculate Your expected returns against Your estimated running costs and determine if it is worth Your while to set up a SMSF.

How many people can You have in an SMSF?

You can have a maximum of 4 members (related or unrelated). Each member must be a trustee of the SMSF (or a director of the trustee company).

What are the tax rates?

Superannuation is useful to save tax for employees and business people. You only pay 15% tax instead of your marginal rate (apart from the superannuation surcharge which You pay if Your income exceeds certain thresholds). Once You turn 55, subject to the reasonable benefit rules, Your maximum rate of tax is 15% (plus medicare levy).

Further, as an existing trader, You can use pre-tax dollars to pay for all the usual running costs of Your SMSF. Expenses such as audit fees, life insurance, limited sickness and accident insurance, some home office costs, education and training costs, and Your computer equipments and trading software costs, can all be paid out of the pre-tax income of the SMSF.

However, you should seek professional advice before claiming any of the above, or spending any money from Your SMSF. For more information.

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TAX MINIMISATION & ASSET PROTECTION - FREQUENTLY ASKED QUESTIONS

"Reducing your Tax and Keeping the Sue-Happy Individuals away from your wealth!"

We set up family trusts, unit trusts, companies and superannuation funds to keep you paying the minimum amount of tax on your trading profits. We also set up our structures to give you maximum flexibility to move your trading profits into other vehicles to invest in property, shares, managed funds, gold bullion, and your other investments. This keeps your tax down and protects your assets. We can also assist you in setting up property and share portfolio trusts.

And we can help you if you do business internationally or trade international markets. We help you get the maximum benefits you are entitled to by law, while complying with overseas regulations.

We also draft many other business and commercial contracts at your request. To name some, we prepare Partnership Agreements, Loan Agreements, Mortgages, Licence Agreements, Contracting Agreements; indeed whatever agreements are necessary to get the best results for you and your business and investing. We can register your trademarks to protect the value of your intellectual property.

And there are many other things we can do for you ... Just ask us and we'll do it for you or find someone who can do it for you.

The Tax Intelligence™ Solutions structures are set up with foresight. We look ahead for the next 10 years to combat any variables.

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WILLS - FREQUENTLY ASKED QUESTIONS

"Giving you peace of mind to keep the family inheritance intact while getting rid of the taxman and keeping the nasty ex spouse away from your family estate!"

At Tax Intelligence™ we give you peace of mind and certainty by preparing Wills to ensure that your loved ones get your assets when you die. By having a Will, you make the choice as to the split up, not the government.

Not only that but as well as normal Wills, we can do special Wills to save you a fortune in tax (as much as $100,000 or more in some cases). These are known as 3 generational testamentary trusts. Despite the abolition of death duties back in 1979, you can still lose a big chunk of your estate in capital gains tax and stamp duty. And indeed people frequently do. Our 3 generational testamentary trust wills get rid of these nasty taxes and stamp duty.

These Wills also ensure that the family estate is more securely protected for the benefit of your loved ones if your loved ones experience bitter marriage break ups. They give some protection from the Family Court dividing the family estate and distributing some of your wealth to the nasty ex spouse of your loved ones.

For anyone with a few assets (especially real estate) this is a MUST.

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"Keeping control of your money in the hands of those whom you trust"

We also include Powers of Attorney in our estate planning package to protect you and your loved ones. Do you really want a 21 year old at the Public Trustee looking after your family fortune if both you and your partner get Alzheimers?

 We make sure that this does not and will not happen to you.

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