Invest in shares through PA/Company/Trust

Hi guys. I've been reading around on and off for the past few years and I am stuck on something. Any advice would be appreciated.

Situation: I have 150-200k of retained earnings in my Company Pty Ltd that I would like to invest in shares as a long-term investment. I currently max my personal income/directors dividend at $180k. My personal account has lets say $50k in cash. Lets assume I continue (for simplicity sake and highly naive) to make the same money as a day trader. My wifes income is low $100k p/a.

So most of my money is in retained earnings in my company. Initially I was thinking about creating a discretionary trust and using my retained earnings but the advice I received was that the trust would have to pay interest to the company at 5%~. I have no idea what return, if any, I would make.

Buying under my p/a or my wife doesn't seem that attractive given marginal tax rates. And doesn't seem worth it to create a discretionary trust using my pa money.

I guess the main issue is that most of capital is in retained earnings in my company, in this situation is it best to just invest using my company or is there a better way?

 

If your company lent money to your trust division 7a would apply which means you need to pay back the principal and interest over 7 years (25 years if secured) you were advised correctly the interest rate is around 5% ish. However its principal and interest repayment required not just interest. Also must have a complying division 7a loan agreement in place not just a normal loan agreement.

Companies dont get the 50% cgt discount so that is a negative however this may not be too much of a cost if your marginal tax rate is at 47% when you sell the asset. Gettings funds out of the company however might tip you back into 47%.

Company to hold a long term investment asset would be the least preferred option due to the loss of the 50% cgt discount

 

Yeap which is why I am trying to look for other options.

 

why not set up a discretionary trust? Paying 5% interest doesn't matter as you are paying a related company and the trust can deduct the interest if it invests in income producing shares. You can divert any income to the same company or another company and when the shares are sold the 50% CGT discount could apply.

Who owns the shares in your company with the retained earnings?

 

You have cash in a company you want to invest into shares.

There isnt many other options than what you have described

 

I am the only shareholder.

 

So my current structure is:
Trading profits > Company Pty Ltd > pay myself wage/dividend capped at $180k. Remaining left in retained earnings.

Moving forward is it possible to go to:
Trading profits > Company Pty Ltd > Trust > Invest in shares/property > distribute to myself/wife/future kids.

 

yes it is provided you comply with the Division 7a requirements.

 

That is terrible!

 

If Company A invests $150K into Company B (a full subsidiary) it may be an alternative that des not trigger any Div7A issues and which quarantines the risk. Asset protection issues may still be a concern for legal advice.

Company A could always lend to you using a complying loan agreement but that may prove costly for cashflow if its unsecured but if the company maintains profits it could be suitable and may also not assist asset protection either.