Fast new business setup is the foundation to any business
- Get it right and you will save thousands in time and needless restructuring
At Umbrella Accountants we will consider all your business plans now and in the future, to take into account your risks, family and various stakeholders to ensure the right business structure / foundation is created.
We can help with
Setup your Company, Partnership or Trust within 24 hours,
Organise the ABN, TFN, GST, PAYG, so that the whole process is quick and smooth as possible.
As your ASIC Agent
Ensure your company register is fully maintained and compliant.
Organise Business Name & Domain Registrations
Is ownership always in your best interests? Company vs Trust
I am looking at a company or family trust for my business and for some investments. What is the difference and what should I consider?
Consideration of asset ownership can be underestimated when it comes to running a business or holding investments, and tax can apply differently depending on what structure you use.
Companies are taxed at a flat rate of 30% on profits. But to get money out of a company, you will need to take wages and be taxed at the relevant income tax rate for each individual which could be anywhere from 0% to 45% plus Medicare levy.
Alternatively you can pay the shareholders a dividend from your profits which will likely be fully franked, meaning that you get a credit for the 30% tax already paid, leaving you the difference between your relevant income tax rate minus the 30% to pay.
On the other hand, income generated by a family trust that is distributed to the beneficiaries is taxed at the relevant income tax rate for each individual – which again, could be anywhere from 0% to 45% plus Medicare levy.
Another big difference between a trust and company is that companies are not eligible for the general 50% capital gains concession where you only pay tax on half of the amount of your capital gains. This leads to some consideration over holding any growth assets in your company.
While choosing the right structure may sound like a nightmare the advice of a professional accountant or solicitor is recommended who will also consider the long-term circumstances of which structure you use and also discuss the protection of your assets.
Here are 8 tips or discussion points to discuss to ensure your assets are protected and generating maximum profits for you and your family:
1. If starting a business, consider the business structure you use and which ones have unlimited liability for business debts.
2. If your business structure has unlimited liability, consider placing assets in a structure to protect you in the event of bankruptcy.
3. Individuals who fear litigation, particularly professionals who may face malpractice suits, should consider protecting their assets by placing them in a structure.
4. Couples who have investments and significantly different income levels may want to consider ownership strategies as a means to minimise tax obligations or maximise tax deductions.
5. Changing ownership of assets can incur capital gains tax, so consider ownership carefully prior to purchase.
6. Discretionary trusts can be effective in minimising tax by maximising distributions to lower income beneficiaries.
7. Making large distributions from a trust to minors can have dire tax implications as their tax rate is 68% above income of $416 a year.
8. Holding assets in trust can provide flexibility in retirement as they do not have the same access restrictions as superannuation funds.
By investing some time to get it right at the start will likely save an enormous amount in costs to unwind it if you got it wrong. People generally don't plan to fail, so don't fail to plan which structure is best for you.
Why not increase the financial savviness of those around you – pay it forward and pass on these tips to your family, friends and kids.
Olivia Maragna is the co-founder of Aspire Retire Financial Services and is a respected and independent financial expert. Olivia's advice is general in nature and readers should seek their own professional advice before making any financial decisions.
|What's the differences between Business Names, Domain Names & Trade Marks|
By Xian Li-Davies and Law Central Legal
An important part of starting a new business is to create a brand (e.g. through a business name). Given the popularity of social media, businesses are increasingly achieving this through having an online presence (e.g. through a website and domain name, Facebook or YouTube).
There are important differences between a business name, a domain name and a trade mark (particularly with regards to proprietary rights) which this article explores below.
A business name is a name under which a person, partnership or company trades. Under theBusiness Names Registration Act 2011 (Cth) (“Act”), all business names must be registered with the Australian Securities & Investments Commission unless an exemption applies.
The most common exemptions are if:
- the business name owner is a person and the business name is that person’s name (e.g. Vera Wang trading as Vera Wang);
- the entity is a company and the business name is the company’s name (e.g. Joe’s Electrical Pty Ltd trading as Joe’s Electrical); and
- the entity is a partnership and the name consists of all of the partners' names (e.g.Jeremy Forsyth and Mary Blundell trading as Forsyth Blundell).
Under the Act, registering a business name:
- does not stop another person from registering a similar business name;
- does not give you exclusive rights to use all or part of the business name; and
- will not prevent somebody who has registered it as a trade mark from using the business name.
A domain name is your website address on the internet. It generally assists your customers in finding information about your business.
Like business names, registering a domain name will not give you exclusive rights to use all or part of the domain name.
In fact, most domain name providers place an obligation on you to indemnify them (i.e. reimburse them) for any loss they suffer as a result of your domain name breaching the intellectual property rights of third parties (e.g. the whole of a trade mark that has the same name as your domain name).
Unlike business names and domain names, trade marks do confer proprietary rights on its owner.
A trade mark is a way of identifying your goods or service. The most common form of a trade mark is a logo, but it can also include words, sounds and smells or any combination of these.
Example of well-known registered trade marks:
Trade marks are registered with IP Australia and can take six to nine months to be examined and registered. Once registered, a trade mark owner will have, among other things, the following proprietary rights:
- an exclusive right to use their trade mark as a brand name for the goods or servicesspecified in the registration;
- an exclusive right to authorise other people to use their trade mark for the goods or services specified in the registration; and
- a right to sell or transfer their trade mark to another person.
Notwithstanding the above, owners of unregistered trade marks are not without rights. They may have a claim at common law (i.e. law made by the Courts) under the tort of “passing off”, or statutory rights under the Competition and Consumer Act 2010 (Cth) or equivalent State-based legislation.
However, it can be expensive and time-consuming to commence such actions given you would have to collate and provide evidence to establish the existing goodwill in your business name, products or services.
It is a common misconception that having a registered business name or domain name will provide a business owner with exclusive ownership of that name. However, this can only be provided by registering a trade mark with IP Australia.
If you wish to have exclusive rights with regards to your brand, you should seek legal advice on whether you can register a trade mark. In this regard, please do not hesitate to contact:
- Disclaimer: The content of this Bulletin is general information only. It is not legal advice. We recommend you seek professional advice before taking any action.
The NTAA Corporate Company Constitution has been expertly drafted by tax lawyers and externally peer reviewed to ensure that it is of the highest standard. It is totally flexible and allows for unlimited different classes of shares including dividend access shares and includes robust dispute resolution clauses. We also supply a Division 7A loan agreement and explanatory guides, which can be provided to your clients as a “value add”. Our Bound and Delivered version includes a professional register complete with everything a Company Secretary might require.
A dictionary definition of a trust is: “A fiduciary relationship in which one person (the trustee) holds the title to property (the trust estate or trust property) for the benefit of another (the beneficiary).”
Why create a trust?
One of the big motivations will be to protect assets. Property and assets can be moved into a trust for protection from creditors, to maintain an estate until a beneficiary becomes old enough to have legal possession, or isolate valuable assets from a trading company that may be more exposed to litigation, for example.
Trusts, if set up in the right way, can help you legally minimise some tax liabilities. But it is a tricky area, and the taxman is always on the lookout to close perceived loopholes or an over-enthusiastic stretching of the scope for reducing tax. Specialised advice will go a long way here.
The word used to name these types of arrangements – ‘trust’ – is appropriate. A trust is a structure that separates control and legal ownership from beneficial ownership; so that at least one person and/or company agrees to hold and manage assets or property in a way that will benefit someone else (beneficiary). A trust therefore is a formal structure for an obligation, where ‘beneficiaries’ place their trust (in the sense of ‘confidence’) in the controller or holder of assets (called the ‘trustee’; again appropriate, as the receiver of their trust) to manage those assets for their eventual benefit.
Other parties in a trust structure include a “settlor” who contributes the initial trust asset (which may be anything, including a nominal $10 cash or even a house) to bring the trust into existence, and an “appointor” who generally has rights to appoint, replace and remove trustees.
You could almost liken a trust to a private jet. The jet is put under the control of a pilot (the trustee) to fly the jet while carrying the passengers (beneficiaries) to a destination (when the trust ends, or is “vested”) where the cargo or luggage (assets and property) is unloaded and given to the passengers again. During the flight, the luggage is maintained in the best condition possible and the passengers may occasionally be offered food and drinks if the ticket contract alllows it (the beneficiaries may be paid distributions from the trust).
Separate control from beneficial ownership
So, getting back to separating control from beneficial ownership, the structure of a trust allows a business or asset to be put into the hands of a third party (trustee) who is given legal control and has a duty to operate that business or manage these assets to benefit someone else (beneficiaries). This is known as a “fiduciary duty”.
There are various types of trusts. You can have a fixed trust, discretionary trust, hybrid trust, unit trust and many more, each with unique characteristics. A deceased estate is also a trust, being property and assets that are held and managed by the executor (the trustee) for those who will inherit them.
Trusts can exist even without explicit intention by the parties to create a trust – it is the existence of the necessary relationship (like the deceased estate example) that forms a trust, not formalities. Having said that, modern trusts are generally governed by written trust deeds, that spell out how it is set up and the rules for its maintenance, the rights and obligations of all parties, and also how income from the trust’s assets is “distributed”.
Distributions and tax
A trust calculates its annual taxable income under the usual tax laws and then the trustee distributes and/or retains the income. Income that is distributed to beneficiaries will be treated as though the beneficiaries earned it directly and will be taxable at their own marginal rates. On the flip side, the trustee has to pay tax (on behalf of the trust) on any taxable income that is not distributed. Undistributed income is taxed at the top rate (including Medicare levy).
When the trustee decides whether and how much to distribute to each beneficiary, the trustee should take into account each beneficiary’s financial, taxation and personal circumstances and distribute income in the way that best serves everyone. Of course, the trustee is restricted by the terms of the trust deed.
Types of trust
In a fixed trust, the share that beneficiaries have in assets and income (which may be proportional or absolute) are pre-determined and “fixed”, leaving no leeway for the trustee to vary income distribution. Unit trusts are typically fixed trusts as each unit held in the trust represents an entitlement to a certain proportion of the income and/or capital.
A discretionary trust provides the trustee with a “discretion”, as the name implies, over who receives distributions from the trust. The discretion must be exercised in accordance with the terms of the trust deed.
A hybrid trust has characteristics of both fixed and discretionary trusts, and can be a unit trust with discretionary distribution options, or a discretionary trust but with certain entitlements that are fixed by the trust deed (so that, for example, a percentage always has to go to a charity). A hybrid trust can be anything that is neither totally discretionary nor totally fixed.
A discretionary or hybrid trust can generally be a “family trust” for tax purposes if the trustee so elects, but distributions need to be restricted to members of a particular “family group” – only distributions outside this group will attract tax at the highest marginal rate (including Medicare levy).
Then why elect to become a family trust? There are a number of reasons and two key ones are; that beneficiaries of discretionary trusts may not otherwise be able to take advantage of franking credits attached to share dividends received by the trust and passed on to the beneficiaries, and that the trust would otherwise find it a lot harder to use past year tax losses against current year income.
Another spur for trust use may occur if means or asset tests for government benefits are likely to figure in your financial future. Trusts can help here with the re-allocation of legal ownership without completely letting go of enjoying the benefits of the asset.
The other side of asset protection is a consideration for inheritance. If a prime asset is “owned” by a trust, like for instance a house with pristine beach front, and the trust deed is specific in terms of selling and/or maintaining the beach house, future generations of the family will be able to enjoy the same asset and not have it sold off by some initial inheriting spendthrift cousin.
There are pitfalls however, as well as challenges in getting the trust structure right. Asset safety and taxation can sometimes be competing interests, and other trade-offs made to take advantage of a trust structure need to be considered.
For instance, when selling your primary residence, one of the main requirements for this sale to be tax free is that it is held in your own name. This means trusts cannot generally sell a primary residence tax free.
There are many more variations not covered here, and much more regulation and specific considerations than can be covered in this section. The area of trusts is a complex one, and anyone considering setting up their own trust is well advised to seek expert advice, both accounting and legal.
Our extensive range of discretionary and unit trust deeds, like our company constitutions, have also been drafted by expert tax lawyers and have been externally peer reviewed to ensure the highest standard. The trust deed service also includes the provision of explanatory guides describing the basic function and roles of our deed (clients love them!). Our Discretionary Trust Deed, as an example, includes a robust income definition clause, an income streaming clause, a default beneficiary clause and control stripping clauses. All of these features and many more are provided to ensure your clients can have peace of mind in knowing their trust deed is “state of the art”.
A partnership is a form of shared ownership of property and an agreement to share certain benefits and obligations. We offer partnership agreements and partnerships of trusts, with or without an agent.
Self-Managed Superannuation Funds (SMSFs)
The SMSF provided by NTAA Corporate has been drafted by Hall & Wilcox, Lawyers, in consultation with in house legal experts. It is continuously updated and allows for all recent legislative changes. As such, it caters for the current pension standards, allows the trustee to borrow as permitted by legislation, binding death benefit nominations are provided as standard, as is an investment strategy and a Product Disclosure Statement (PDS). Further, as we work closely with advisers, assisting trustees borrow to invest in property, we consider, and where appropriate, incorporate the requirements of the major lenders.