Sell my car into my Trust?

Discussion in 'Business Accounting, Tax & Legal' started by Propagate, 1st Feb, 2018.

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  1. Propagate

    Propagate Well-Known Member

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    There won't be any if we've taken all profit along the way as fees.
     
  2. Trainee

    Trainee Well-Known Member

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    if there are no accumulated profits that makes sense.
     
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  3. Propagate

    Propagate Well-Known Member

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    We've accumulated a small emergency pot to cover the staff guys wages & Super etc for if/when we have a quiet spell. After that the company is milked in management fees every month so as not to leave any profit in the company.

    So, back to the original question, can I sell my car to my Trust without inuring the wrath of the ATO? ;-)
     
  4. Mike A

    Mike A Well-Known Member

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    This is terrible advice.

    1. A management fee from your trust to the company ? For what ? Refer phillips case and service trust arrangements.

    Your service entity arrangements

    If it is for your services thats worse !! PSI rules apply. No distributions to a low income earner from that trust i hope.

    2 your trust holding shares in the company is NOT a small business entity. If it holds the vehicle none of the concessions apply.

    If it has income from your services it may be a small business entity and eligible for those concessions. Note however that trust now has PSI.

    Is that trust also charging GST ? Does it have an ABN ? Have you been issuing tax invoices ? Registered for workers comp ? Have PI insurance ?

    3. The 20k write off is for assets UNDER 20k. You dont write off the 20k and depreciate the balance. That has to be the worst advice ive seen on that concession.

    Assets costing more than 15k get depreciated at 15% in first year for 2017 and 30% thereafter in the pool.

    4. Why would you want a trust holding the car for which a service entity arrangement applies. FBT will apply. Has your partner got advice on the FBT implications for his trust. Probably not.

    Get it all in writing with legislative references as to why this has been done. In an audit you are in a world of pain. Your service entity arrangement may not even comply.

    You will need that emergency pot if you get an audit. Dont spent it.
     
    Last edited: 22nd Feb, 2018
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  5. Propagate

    Propagate Well-Known Member

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    Thanks @MikeLivingTheDream I'll get on to our accountant about the trust stuff. The trust does have an ABN and is registered for GST.

    I don't know the "technicalities" of how we classify the payments form the company to the trust as yet, being the first year, I will clarify with the accountant how it works though.

    I know when we first set up it is how the solicitor proposed we structure but I could't get my head around it so we just went in as personal shareholders of the company. The principle accountant/owner of the firm at the time was very thorough at assessing the PSI rules and she also suggested the Trust structure was the way to go but we stuck with the personal share route.

    The accountancy firm was bought by another firm and the new principle reviewed our structure last year and wondered why we weren't using Trusts, she explained it much better and we revised the structure to sell our shares to our trusts.

    I've no doubt it's all about board, I just don't know the intricacies of it or the jargon property so I'm perhaps confusing things.

    As for the car issue, its not a route I'll be going down, it was just a random thought, hence the question. For my partner, it's up to him what he does with his own trust and what advice he gets.

    Cheers, much appreciated for the response.
     
  6. Propagate

    Propagate Well-Known Member

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    Oh, just to add @MikeLivingTheDream that no, there is no distribution to a low earner form my trust. lt all distributes to me. My understanding from the solicitor and accountant originally is that it was set up this way more for asset protection than anything.
     
  7. Paul@PAS

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

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    Like a class trust but badly established ? Wow. In the limited cases when you do that a fixed entitlement to your share would be nice. Hope you dont fall out with the other guy and he hijacks the business. Get sick or die. Companies dont have to give shareholders jack.

    The workers comp grouping must be a pain.The staff may be covered however. Super compliance may also be a nightmare. After all a Director is a employee.

    And thats without PSI....Unfranked income perhaps ?? It seems to meet the definition of s254T Corps Act.

    GST hassles... Grrr. The trusts would need to be registered despite the $75K threshold. The structure is a GST group. They mentioned that too ?

    Ask the lawyer at the accountants if any of that is incorrect ??

    Should the car be in the trust ? It could. It wont be deductible and cant claim the GST. and so on. Cars arent normally an asset that concerns itself with asset protection.
     
    Last edited: 22nd Feb, 2018
  8. Propagate

    Propagate Well-Known Member

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    @Paul@PFI - Not sure what a class trust is?

    There's two Family Trusts, one is mine, one is his. Each trust owns a fixed amount of shares in the company (equal amounts each - I think it was 6 shares each from memory).

    The Trusts are registered for GST and have ABN's.

    Our staff are employed by the company not the trusts. The company has PI & Indemnity insurance plus worksafe. My partner and I are not employed by the company.

    I touched base with the accountant this morning, she's away at a conference but she did flick me back these points:-

    Your trust is not considered as "Service Trust", which the ATO is quite strict on how "service fees" are determined. Also your business income is not considered as "personal service income" as the revenue is generated by a "structure", i.e. Employees. (Special rules apply to PSI).
     
  9. Paul@PAS

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

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    Ask your accountant to explain. o_O

    You are a employee. All directors are employees (common law). Payments to your trusts would be classed as wages. Workers comp grouping avoids double taxing. I have seen many people think they can avoid workers comp, SGC and other obligations using a trust. And in some cases they sub the business into sections to avoid payroll tax too.

    Income generated by a structure...Hmm. Never seen that view used. The employment test may be met. By the Company. Not the trust. The PSI issue is between the trust and company. May even be a Part IVA concern if others benefit. Part IVA is something the accountant who set it up should have already discussed. Part IVA is a anti-avoidance law which basically says if you do something to get a tax benefit the Commissioner can cancel the arrangement... eg Diversion of wages from the company to a new arrangement usinga trust. Part IVA may be easy to establish if prior to the advice the wages went to you and now the trust splits the income. Asset protection may be a dubious defence.
     
    Last edited: 22nd Feb, 2018
  10. Propagate

    Propagate Well-Known Member

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    Thanks @Paul@PFI I'll bring all that up with them tomorrow. Cheers.

    Far out, so many traps. You think you';re doing the right thing engaging solicitors & accountants to do things right for you (both of which were recommended via here) and seems even then you have to second guess everything. It's not like these are cheap back street mobs either, we paid decent dollars for both the original solicitors advice on correct structure set up and the subsequent accountant.
     
  11. Mike A

    Mike A Well-Known Member

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    if they were recommended from here then ask them to post here. It clearly isnt either Paul or I who setup these structures as both he and I think you have some issues.

    why would the service entity arrangements not apply ? why does the income your trust receives not be PSI ? its either a management fee for your personal services which means PSI or its a service entity type arrangement.

    what is this income your trust is charging the company for ? you said for your wages. that will mean PSI needs to be considered by your trust. The company I dont have an issue with its your trust as shareholder charging fees to the company that presents issues.

    Get them to join here and give their thoughts.
     
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  12. Mike A

    Mike A Well-Known Member

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    Curious why the trust wouldnt meet this definition

    A service arrangement will generally show all or most of the following features:

    • The taxpayer (and this could be a sole proprietor, a partner in a professional partnership or a company) carries on a business or professional practice in a field such as accountancy, law, medicine or pharmacy.
    • There is a trust that is controlled, or a company that is owned or controlled, by the taxpayer or the taxpayer and associates.
    • The taxpayer, alone or in partnership, enters into an agreement with the service entity for the taxpayer to pay certain fees and charges in return for the service entity providing certain services. These services could include staff hire, recruitment, clerical and administrative services, provision of premises, plant or equipment, or a combination of services.
    • Typically, the service fees and charges are calculated by way of a mark-up on some or all of the costs of the service entity (although a fixed charge may be agreed on by the parties up-front).
    • The taxpayer (or professional partnership) claims a deduction for the service fees and charges as expenditure it has incurred in the conduct of its business.
    • The service arrangement either gives rise to profits in the service entity, for both accounting and tax purposes, or would give rise to profits in the service entity except for remuneration or service fees paid to associates of the taxpayer or the taxpayer's partners.
    • The profits derived by the service entity are either retained by the service entity (usually where the service entity is a company) or distributed (directly or indirectly) to the taxpayer (or partners in the case of a partnership) and/or to associates of the taxpayer (and associates of the partners in the case of a partnership).
     
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  13. Mike A

    Mike A Well-Known Member

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    You do realise as well you could achieve the same thing by paying yourself through the company.

    Why do it through the trust with registrations, PSI issues, GST, additional compliance , etc

    Makes no sense to me
     
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  14. Propagate

    Propagate Well-Known Member

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    I don't believe they are members on here. Come to think of it, the accountant was recommended from someone on here and the accountant recommended the solicitor.

    On the face of it it certainly seems to meet the service agreement you outlined @MikeLivingTheDream having said that, for me personally, what are the ramifications if it does? My Trust will only make disbursements to me at the end of the day (it won't be filtered out amongst lower tax bracket family members), so by the time my company tax returns, trust returns and personal returns are all lodged the net income to me and the tax paid by me would be the same regardless of how I received it wouldn't it?

    Or is there a fundamental issue with running a company via a Trust over and above an attempted tax dodge?

    Just to be clear, my trust will disburse only to me as a beneficiary and has no car or anything else attached to it. It just receives money plus GST from the company each month and then gives me that money to spend (with an amount held back in storage ready to pay it's tax & GST bill).
     
  15. Terry_w

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

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    Sounds like the trust is just a shareholder to me.
     
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  16. Mike A

    Mike A Well-Known Member

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    I dont have an issue with using a service trust but you then need to make sure the charges are commercial, issue invoices, do BAS returns, financials, deal with PSI, etc so if the ATO audits the company the fees are considered reasonable.

    Why not just pay yourself through the company without ANY of those issues.
     
  17. Propagate

    Propagate Well-Known Member

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    That's exactly how we had it set up in the first year. The accountant and solicitor proposed the Trust intermediary but we opted to keep it simple, we were both equal share holders directly employed and paid wages by the company.

    After the first years accounts the accountant suggest the trust structure again, one of the reasons being flexibility for each partner to do whatever they want outside of the company within their Trust. To be honest, it made no odds at all to me, as I said in my last post, the net outcome for me is exactly the same but my partner was keen (i.e. to buy a car through his trust etc) so we sold the company to the trusts.

    I couldn't give two ***** what he does with his Trust as log as mine's above board and doesn't affect the company.
     
  18. Propagate

    Propagate Well-Known Member

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    They are.
     
  19. Mike A

    Mike A Well-Known Member

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    I understand having a trust as shareholder for asset protection that was a sensible move.
     
  20. Mike A

    Mike A Well-Known Member

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    Your one sounds ok. Just make sure you tick all the boxes re service trusts which is what it is and your entity shouldnt have major issues.

    And when you fill out your trust return record the income as PSI

    Make sure your company workers comp declarations include the payments to both your service trusts
     
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