Optimal Structure for Investments if Labor wins

As I have most of my income generating assets in a family trust and looking to retire in the next few years, the proposed changes by Labor got my 100% attention.

Having read the Labor's FACT SHEET, and using the example of John the rich lawyer in the fact sheet, it appears that under the new proposed plan

1. Distributions will be taxed at a minimum of 30% or your normal marginal rate, which ever one is greater. In the example, the distribution of $70,000 under the current regime will attract a tax rate of around $15,000 or 22% (15000/70000), under the proposed regime, the tax payable will be $21,000 (30%). So effectively, labor doesn't want you to use the tax free threshold.

2. Under the new regime, can we still distribute to a company and tax the distribution at 30%, then company can pay the shareholders(beneficiaries), this will enable the beneficiaries to claim the tax free threshold and hence the use of franking credit

3. Can the trust employee the beneficiaries and pay them a wage instead of distributing income, this way, the beneficiaries can still claim the tax free threshold. but then how can franking credit be distributed in this case ?

Always thought Trust is the best structure to invest as it gives you the flexibility to distribute income, however, with the govenment cutting the benefits of SMSF and now targeting trusts, which structure will be the optimum for future investments ?

Me and my wife are both in our late 30s and have been working very hard to save and now generate a good passive income to retire, this proposal just about to derail our plan.

moving assets to personal names a good idea in this case ?

I don't mind them taxing this or that, but changing policies every few years can be very frustrating and expensive for us normal people.

 

I would be surprised if Labor would allow Trust distributions to a
Company beneficiariary to get the benefits of the franking credits where human beneficiaries can't. This is reinforced by what Bowen said:

Suggestions such as the following are already being talked about so I would imagine Labor are aware of this and will look to penalise such strategies:

For nervous retirees trying to hedge against future legislative risk to Trusts and investment companies not being run as a business having assets in own name to take advantage of less than 30% tax bracket is the simplest strategy. That would allow each retiree to earn up to around $37k. Above that a Disc Trust, company or combination would appear still beneficial.

The killer for those with existing Trusts is CGT if wanting to rearrange affairs. They should but probably won't allow CGT relief to those wanting to do so.

But I'm just a clueless layperson. The accountants here will have a much better ideal.

 

Sigh, if you work hard, save harder and invest the rest...you dont get rewarded but penalised. I don't mind paying my fair share of tax but this policy is saying having income generating assets in a trust is worse than having assets under your own name.

Might as well keep it as simple as possible and not over think and avoid all the accounting fees and keep everything in own name.

Definitely not voting for Labor and will encourage everyone I know not to vote for them

 

No one sensible votes labor anyway

 

Yes I'm not happy myself. Our Trust was originally setup to protect assets given my wife was a partner in one of the big four accounting firms. When she left that role we just continued to use the Trust for holding investments. With no assets in own names and only us two as beneficiaries these proposed changes will see us much worse off compared to holding investments in own name. Fortunately quite a lot of assets were transferred to the SMSF in the past.

These changes won't impact the very wealthy much at all but many smaller investors / businesses run through a Trust will certainly feel it's effects. We are fortunate enough to be able to rearrange our affairs with relatively minimal CGT. I imagine others will be less fortunate.

 

All equally dependant on government handouts in retirement...

 

Yes but I want to be more equal.

 

I suppose I get my handout through Super pension.

The only annoying thing about these proposed Trust changes is that they can leave some a lot worse off than if they just owned the assets in their own name.

 

pretty much only a few options

1) Super - government is already taxing assets above 1.6M and can definitely see more restrictions coming, plus you cant access the money til you are half dead anyway
2) Trust- no more needs to be said, Labor is killing them
3) Company - no CGT concession, and no guarantee labor or future government will crack down on passive income generate from this structure
4) personal name - no flexibility

Sigh. any ideas ? If labor win, I will need to sell assets in my trust and transfer the money to another structure

 

What a horrific concept.

 

Don't worry @austing they'll be coming after your super next.

 

The majority of people vote Labor. The coalition scrapes by with an assortment of four different parties.

I guess the majority of people are not sensible.

 

I'm guessing you are also hit with the 15% super tax on assets over 1.6M...happy with that ?

 

at least with company structure taxing at 30%, you get a franking credit attach to that which can be used to lower your tax.

Trust is the worst structure to be in now.

Damn you Labor

 

The words retirement suggest consideration of superannuation incl SMSF. I see nothing in the shorten proposals that affect unit trusts either. A Reg 13.22 ungeared unit trust strategy may allow individual investors to be neg geared and a SMSF to be positive geared. It does require unencumbered equity OUTSIDE super

 

Again, so soon. This is why I keep a cellar full of home brew. It's the only way I can cope with the stress of it all.

Labor's only Super policy that I'm aware of is reducing non Concessional contributions to $75k.

 

I wouldn't mind exploring option 3.

If you are buying assets for passive retirement income you definitely don't want to sell them so not having the CGT concession can be mitigated.

Let's say you have company with husband and wife 50/50 shareholding you can declare dividends with franking credits attached and pretty much end up getting similar benefit to discretionary trust with husband and wife as beneficiaries.

The other good thing with company structure is while you are working and earning wage you might not want to distribute all your income which with discretionary trust you are forced to. Hence, the company can keep holding all profits and franking credits to be distributed later when the opportune time comes in retirement. But you do pay flat 30% tax each year on all profits.

The other benefit with company is unlike trust there is no vesting date. Companies can live forever. Probably won't make much difference to you but might be good for your kids.

Accountants here can shed more light but I believe you can issue different classes of shares which you can then pay dividend on thereby incoming splitting to some extent by issuing those shares to non-working or low income beneficiaries.

The only downside compared to trust is asset protection. If you get sued/bankrupt shares issued under your name can be under threat.

This is my understanding but an expert like @Terry_w might be able to provide more details.

Cheers,
Oracle.

 

I see Bills home state is planning some changes after the election

 

Yes to be honest:

1. A couple can have a tax free Pension from $3.2 mil in Super
2. Over $18k each tax free in personal names
3. Super accumulation only taxed at 15%
4. Then earn up to $37K in personal names taxed at less than 30%
5. Company structure and / or insurance bonds taxed at 30%.

If after all that one has to pay a higher tax rate he / she certainly can't complain.