Best company structure

Discussion in 'Accounting & Tax' started by miniclip, 14th Apr, 2022.

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  1. miniclip

    miniclip Member

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    Just after some general thoughts on company vs trust or a combination (open for suggestion) for a professional engineering consultancy work that my husband do. (yes we considered PSI rules)

    Will seek more definitive financial advice from an accountant/solicitor once i decide on which way to go. Thanks in advance for all your inputs!

    The expected yearly income is approximately $250-$300k a year. I am currently working as well (part time) earning $50k a year (but planning to quit once the business demand more of my time). We have 2 kids below 12 years old. Apart from my husband and I, there isnt any family members that would be involved.

    We have property mortgage (resident and investment) with quite a significant loan left to pay. Im aware that with a company structure, there will be a limited amount of money that we can take out before subjected to high individual tax bracket. I like the idea of a company where the money can be retained in the company account as a future saving/investment. I believe with trust (correct me if im wrong), i will have more flexibility in terms of accessing the fund (anytime) for our mortgage offset account.

    Based on our scenario, Im interested to know whether a company or trust structure would be more beneficial from a tax point of view. Not really concern about asset protection, risk etc at the moment

    p/s do not intend to move my properties into the trust as there would be capital gain tax etc...
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Financial advice is not needed as no financial products involved.

    If it is PSI income all would have to be taxed in the income earner's name. But it still might be worthwhile using a company or a corporate trustee if it becomes a genuine business in the future.
     
  3. miniclip

    miniclip Member

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    Hi Terry

    Thanks for your reply. I have been reading most of your tips in the last few days! It has been very helpful indeed :)

    Apologies for not making it clearer, the PSI rules does not apply in our case (we can satisfy the 80% and independent clients). Based on this information, would you be able to advise which structure would benefit in terms of tax?

    And would you be able to recommend an accountant/solicitor that is based in Brisbane?

    Thanks!
     
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  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Only a tax adviser could determine if PSI rules do not apply to facts that arent mentioned. It maybe the case but I often see people who say this and find its not correct. For example contracts obtained through an agency may well be PSI. The 80% test, results test and other issues are poorly understood even by some advisers.

    There will also be issues with how and what costs the entity can incur etc so some planning helps

    A trust or company with many alternatives needs to be considered. eg a company can only pay employees consistent with workplace laws and this affects super, w/comp and more. Single Touc Payroll and other matters. A trust may be different. Companies also need to consider who the shareholders are and what share classes.

    Retaining profit in a company could be achieved two ways. 1. Retained earnings in the company with possible Division7A issues and 2. A trust can have a company beneficiary. A trust with company beneficiary may see 25% vs personal marginal rates as will the company that trades. Borrowing and other issues also are impacted

    I would differ in my view about a consultancy in engineering and asset protection being able to be disregarded. Legal advice is a matter to consider. PI and other insurance may mitigate some of the risk. Subcontracts may have less risk but not no risk.
     
  6. Mike A

    Mike A Well-Known Member

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    even if you meet the tests to be a psb still need to consider part iva.
     
  7. miniclip

    miniclip Member

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    Thanks for all your replies.

    My accountant suggested us to set up at PTY LTD and a family trust. The purpose of the PTY LTD is to manage the family trust. We will need both the trust name and company name on all my transactions and legal document. This i believe will allow us to legally withdraw money from the business when required. The purpose is to placed the money in our mortgage offset account

    As i am clueless, It seems like a complicated structure? Any opinion. Just want to a second opinion from you lovely people :) (dont think we can afford a second opinion from another accountant)

    And we've already registered a company (PTY LTD) earlier this year and we have not trade with the company, Can we use this company as a trustee to the family trust?

    And how long does it take to set up a company trust as such, forgotten to ask the accountant this question?

    Thanks for your help again!!
     
  8. Trainee

    Trainee Well-Known Member

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    How do you withdraw money from the business when required? What are the tax implications?
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Sounds like your accountant explained it wrong or doesn’t understand trusts. Company it sound like would be acting as trustee. No need to put trust on documents. Could use existing company potentially
     
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  10. Mike A

    Mike A Well-Known Member

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    post is confusing. using a trust and placing money into your offset ?
     
  11. miniclip

    miniclip Member

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    Hi Terry, how much do you charge to set up a discretionary trust with corporate trustee? And how long does it normally take to set one up (already have existing company)
     
  12. miniclip

    miniclip Member

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    We are both practicing electrical engineer, although slightly different field. Hence I believe we can avoid part iva if i can contribute generating the company's income, which I geniuely intending to do but not at his capacity (ratio might be 70 30) or alternatively I can be employed by the company (is spouse hiring an issue?) . The trust beneficiaries will be both of us at this stage. We looked at the new PSI rules and believe our risks are low but will definitely seek professional advice . Do you see this as an issue?
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    i charge $660 for a meeting and $1100 for each of a company and trust. But I am semi retired and not taking on direct legal clients anymore
     
  14. Mike A

    Mike A Well-Known Member

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    i had a private ruling where there were 3 individuals in the entity but the income was mainly from one large corporate. tried to argue employment test but failed.

    you might have a PSB but will need to consider part iva. if you meet the PSB tests having a wage split 60/40 would br reasonable. much harder for the ato to argue part iva.
     
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I thought there was a trust ? Goes to show how badly understood the basics are and yet can argue PSI isnt a concern. I find EVERYONE can tell my why they think PSI isnt applicable before they get advice. The nature of PSI is who produces the income from their efforts and exertions.
     
  16. Mike A

    Mike A Well-Known Member

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    i think they mean "company" in the general sense. basically business income but could be wrong.

    trusts have the same psi issues to consider as well.