Passive shares

Discussion in 'Share Investing Strategies, Theories & Education' started by hammer, 30th Apr, 2017.

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  1. oracle

    oracle Well-Known Member

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    This brings us to argument of inter generational asset transfer without capital gains tax. Looks like company structure wins hands down.

    Cheers
    Oracle.
     
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  2. Terry_w

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

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    What about the shares!
     
  3. Perthguy

    Perthguy Well-Known Member

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    That's what I was just going to ask. Say an investment company is formed to hold shares and property with a view to never sell any assets. The point is to generate an income stream, not profit from buying and selling assets.

    Can the Company be passed to the next generation without capital gains tax consequences?

    If a trust, what happens after 80 years?

    It would be interesting to see the mechanics of say a PTY LTD Company with mum and dad as shareholders and how this is passed down to the kids. Say the parents pass on and the kids inherit the shares. One of more of the kids could become a Director? And what if the parents wanted their kids to control the company before they pass? Interesting.
     
  4. Terry_w

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

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    Shares of a small company are property that can be willed - if owned beneficially. When they are passed down there would be no CGT payable until the beneficiary sell them.

    However if shares are owned as trustee then they cannot be left in a will. Once the trustee dies a new trustee will step in to replace them and the trust will keep going.

    Shareholders generally control who the director is - but you must look at the company constitution to determine how.

    A non sharehold could also be appointed director.
     
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  5. Hodor

    Hodor Well-Known Member

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    I'm fine with myself, what protects me from my wife?
     
  6. The Falcon

    The Falcon Well-Known Member

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    I hear you on the CGT discount, but typically i am considering investments that are never sold, rather held for income. I do like the simplicity of the company, but agree that there are circumstances where DT + company is certainly preferable. Looking at a lot of the HNW stock investors (in traditional LICs in particular) they are running company structure with trust shareholder (now that bit i am guessing!), obviously thats just a comment, not justification.
     
  7. oracle

    oracle Well-Known Member

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    How do the rich structure inter-generational transfers without triggering CGT event?

    Surely, there has to be a way to transfer assets to next generation without huge tax bill and at same time have proper asset protection mechanisms in place.

    Cheers,
    Oracle.
     
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  8. Terry_w

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

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    Look at the recent Reinhardt matter. The mother's argument in extending the vesting date of the trust was that if it vested the beneficiaries would be bankrupted by the tax payable.

    But the counter argument was this was not in fact the case.

    Trusts have only been used in large numbers in a commercial sense since the 1970s. CGT was only introduced in 1985 so I don't think there is much in the way of precedent in this.

    The laws against perpetutities are designed to prevent assets being tied up in the same families for ever under the same ownership. They may change before trusts being set up today need to vest.
     
  9. Terry_w

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

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    They will eventually be sold at some point.

    The DT with bucket company has all the benefits of the company with DT shareholder, but more.
     
  10. pippen

    pippen Well-Known Member

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    So is the general consensus that fees for setting up a discretionary trust around 1500 to 2k per year?? What about the ppl who aren't on 150k plus per annum and who just do a good job on defense and budget and cut expenses and save majority of their wage earning around 90k a year, still a viable option to set up early in the piece?!
     
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  11. Terry_w

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

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    Note sure where you got this consensus from, but a trust would only have costs of
    a) tax returns/financials which would depend on what the income of the trust is like.
    b) ASIC fees for any companies involved of $250 or so.
     
  12. orangestreet

    orangestreet Well-Known Member

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    Ever grateful to @austing who impressed upon me the importance of setting up the right tax structures (whatever they may be based on your specific circumstances) EARLY. If it makes sense to invest for 30 years or more, it makes sense to consider doing it in the right tax structures from the get go.

    Not advice.
     
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  13. Terry_w

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

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    With share investing it is not so vital to get it so right from the beginning as structures can be changed easily. There is no stamp duty, so generally only CGT costs and this can be minimsed to a degree. Of course it would be best to avoid triggering CGT, but if you need to restructure it is not the end of the world.

    However with property it is much more costsly and cumbersome, especially where finance is involved.
     
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  14. pippen

    pippen Well-Known Member

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    I'm sure I've read here a charge of around 1650 for a couple hours initial instruction + annual ASIC fee as well as individual tax return can't find the post but I'm sure I had it bookmarked and was around 1k to 2k per annum I believe! At the moment say I was receiving around 4 to 5 k divs per year the fees erode the divs seems a bit steep however I will be investing around 25k per annum for next 20 to 25 years at least and im sure the divs combine year after year giving more reason to use trust and the added flexibility!
     
  15. Terry_w

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

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    I charge $1650 to set up a trust with a 2 hour consultation included. But this is one off.
     
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  16. Ouga

    Ouga Well-Known Member

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    "Trying is the first step towards failure" Homer
    If you can pass down your investment philosophy to your children, inter generational asset transfer without CGT is easy. They inherit your assets, and keep holding them forever, benefiting from the income they generate like you have.
    Of course, some will say: "but the kids could blow it all off!" - but at the end of the day if the philosophy of investing is not passed down to the next generation together with the assets, it will happen eventually one way or another, regardless of the structure in place IMO.
    I would actually argue the investment philosophy is perhaps the most important asset to pass down to the next generation as this is what will shape future behaviours which are the essence of the success of such a long term plan.
     
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  17. Zenith Chaos

    Zenith Chaos Well-Known Member

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    I've done a fair amount of thinking on their matter and this is my view: There are three main factors at play assuming you want passive instruments. The initial amount to invest, the periodical amount to invest and to a lesser extent asset allocation and balancing.

    If you have large amounts to invest periodically, say 5k per month or so, then ETFs are probably the best option. This would imply you have a decent income stream.

    If you are saving for 6 months to get 5k then it might be worthwhile going for the wholesale fund to increase time in market, but this is not possible without 100k up front. To avoid the CGT moving from the retail to the wholesale I suggest borrowing 100k to buy into wholesale and use all dividends and savings to pay off that loan, which is tax deductible, unless you have non-deductible debt which always takes priority.

    I also feel there is merit to having a portion in ETFs and a portion in the wholesale fund. The fund portion allows balancing over the entire portfolio and you have the flexibility to buy LICs/index ETFs for the share portion of the portfolio - remember the per annul fees on the wholesale are a bit higher. This would require a large balance, but the advantage would be you can frequently pay small amounts into the wholesale fund and then buy on the sharemarket when LICs are down and you have a big chunk of money.

    In summary
    Large income - ETFs or LICs on periodical basis. Eventually leverage conservatively by borrowing expected dividends for the year and lump sum into market.
    Small income - Borrow to get into the wholesale fund paying off loan before buying more units.
    Hybrid approach - gives flexibility to DCA regularly into wholesale, balance easily across Australia vs International using wholesale fund and buy value chunks in satellite / core LICs / ETFs that have lower fees and are therefore cheaper to own.

    Everything into discretionary trust with bucket company particularly for high / future high income earners.

    Not licensed to give advice.
     
  18. oracle

    oracle Well-Known Member

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    Many thanks Terry

    Will get in touch once I am ready.

    Hiten
     
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  19. Redwing

    Redwing Well-Known Member

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    Own nothing, control everything :D
     
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  20. Redwing

    Redwing Well-Known Member

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