Share Trading as a business

Consider this scenario. Homer & Marge are both "retired" & have a yearly income of exactly $45k each from rental income. Homer quit his job at the nuclear plant a few years ago. Homer & Marge setup a joint brokerage account in personal names & have been share trading as a business ever since. They've come to a point where they expect they will be making 6 figures per year as share traders (joint account). They are considering a more tax effective structure to trade from. Once above $45k the tax rate would be 32.5% tax rate, plus 2% medicare levy.

What would be an best structure for them to consider as a share trading entity?

1. Company with one (or both) as directors, with the shares held by a discretionary trust with one personal trustee.

2. Discretionary trust (personal trustee or both trustees) with a bucket company as a potential beneficiary. Bucket company shares held by a discretionary trust with one personal trustee. Any difference between personal or company trustee for purely share trading?

Are there any pros & cons between the above? Any other alternative structures worth considering?

I guess with the 1st scenario it would be easier to keep trading with profits retained in the company the following years but with the 2nd you would need to keep gifting or lending funds to the trust every year.

 

Adding to the above scenario, let's say Homer & Marge have a unit trust which owns a property and there are $250k in quarantined negatively cashflow losses that are yet to be used, increasing every year.

 

Both might be very similar from a tax point of view,
but there is more to it that tax and that is why they need legal advice.

Generally I would think the trust is preferrable. But it would depend on what htey would want to happen after their deaths, getting funds into the entity, what will be done with the income etc.

 

It is known that about 80% lose money and less than 20% make profits.
Surely trading is a hobby, leisure just like the casino and playing pokies.

 

Question - Are they "both" trading or is it just Homer ? Personal Services Income issues could be a factor and Part IVA could also apply where the efforts and exertions are from Homer trading. The company or trust may be required to address the PSI and Homer may be subject to full and final tax. A trust may have less likeyhood of being attacked for PSI issues. The trust needs to consider a family trust election for franking credits perhaps.

 

There is an answer.
https://www.ato.gov.au/law/view/document?DocID=AID/AID201056/00001&PiT=99991231235958
spread betting and trading is a game of "skill" according to the ATO.
Horse racing, not so much.

 

That was about spread betting. Nothing to do with shares or trades. Intention was to produce profit from the nature of the contracts eg buy low, sell high. The reference to skill and judgement refers to skills aimed at production of profit rather than pure betting which is a win-lose outcome eg two up has three fixed outcomes.

Horse racing is a very complex issue and changed ATO views in the case of "The Joker" have never been tested in court.