Structure used to invest in shares

Discussion in 'Accounting & Tax' started by Observer, 16th Feb, 2017.

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What structure do you use to invest in shares?

  1. Buy in own name

    28 vote(s)
    50.0%
  2. Buy in low income earner name (spouse, etc.)

    17 vote(s)
    30.4%
  3. Discretionary family trust with myself as trustee

    6 vote(s)
    10.7%
  4. Discretionary family trust with corporate trustee

    14 vote(s)
    25.0%
  5. Company

    2 vote(s)
    3.6%
  6. Other

    5 vote(s)
    8.9%
Multiple votes are allowed.
  1. Observer

    Observer Well-Known Member

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    Really interested to see what kind of structures people use and their reasoning, pros and cons.
     
  2. Nodrog

    Nodrog Well-Known Member

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  3. Observer

    Observer Well-Known Member

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    Thanks @austing. I've already read those two threads and they are really helpful.

    I still can't get my head around the workflow of money (e.g. reinvesting the dividends; investing own monthly savings) in the family trust with corporate trustee structure. I'll definitely use professional advice when I'm ready to setup that structure.
     
  4. Terry_w

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

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    This is common, but I think the way to get your head around it is to just ingore the trustee part and think of the trust as a different person - call it Bob. Bob invests and does things with the proceeds.
     
    Last edited: 16th Feb, 2017
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  5. Ross Forrester

    Ross Forrester Well-Known Member

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    I use all of the options listed based on the goals and position of each family looking at investing.

    And I also do combinations as well.
     
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  6. wombat777

    wombat777 Well-Known Member

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    Buying shares in own name to keep it simple (i am single).

    I've also decided not to top up my super (which is now largely invested in ETFs) beyond the statutory contribution requirements (despite tax benefits). This is also to retain flexibility for use of surplus funds.
     
    Last edited: 16th Feb, 2017
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  7. pippen

    pippen Well-Known Member

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    Buy shares in my partners lower income name atm! No family for at least next 4 to 5 years ideally would like to retire at say 55 (currently 33) contributing 24% of gross salary to super pre tax to help that compound as well as building up portfolio in my partners name and in addition to my name (39% tax bracket) to hopefully use these funds to get me from 55 years of age to preservation age for super. No debt also.
    Will be a long ride will see how it pans out!

    Anybody have discretionary trusts being just a couple or more beneficial for families?
     
  8. Observer

    Observer Well-Known Member

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    @pippen I think it may be beneficial for a couple in the long term when there is a larger dividend stream which could be split between the couple in the most effective way for tax purpose.
     
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  9. Terry_w

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

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    And don't forget the use of the bucket company later on.
     
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  10. Nodrog

    Nodrog Well-Known Member

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    If you're going to retire that late or within 5 - 10 years of Super Preservation age then there's a simple alternative:

    1. Throw as much as you can at Super.
    2. Close to 55 replace the car if needed, get any house repairs done and deal with other short / medium term expenses etc.
    3. Leading up to 55 accumulate enough cash to provide for 5 or so years living expenses.
    4. Retire at 55 then live off the cash / term deposit capital and decreasing interest until you can access Super.
    5. Remember you can earn $36k plus as a couple tax free outside Super so cash set aside till preservation age unlikely to be taxed.
    6. Yippy, preservation age reached so can now draw a no / low tax Super pension.
    7. If too much in Super for tax free pension withdraw some / excess and invest in own name. With previous cash used up prior to Super access there's again $36k that can be earned in own names tax free.

    Simple, only structure required is Super which is mandatory for most anyhow. No other expensive structures such as Trusts and. Companies.

    The elephant in the room though in regard to Super is "regulatory risk"!
    Yep.
     
    Last edited: 17th Feb, 2017
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  11. pippen

    pippen Well-Known Member

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    Cheers for the great post @austing, agree with the super contributions as I get a company match of 5.88% pre tax and im a couple k short of maxing out the contribution limit pre tax.

    Working in the other 2 buckets as we speak in building up investments in cash to cover living expenses as well as replacing life style assets in addition to holding other investments namely Argo, bki, Milton, Vgs whilst waiting to get into WHF and AUI in my partners name as well as my name (maybe not as much given the higher tax rate but if it all goes into my partners name we lose a lot of flexibility!

    So a bit of a juggling act and a major work in progress.
     
    Last edited: 17th Feb, 2017
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  12. Zenith Chaos

    Zenith Chaos Well-Known Member

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    My plan is to retire earlier than 55 with a trust, wife and two kids approaching 18. The plan is to retire when I accrue enough in the trust to pay me a satisfactory perpetual income from dividends. When I hit 60, the super will just be cream on the top. I could retire earlier by eating into trust capital and then having some reliance on super at 60.

    This strategy is based on the fact that I don't trust the government with my super (the regulatory risk). This plan will result in super having less than the trust.

    Are there any obvious issues (taxation) with this plan?
     
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  13. Terry_w

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

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    Sounds like a good plan. Many others doing it too.

    Just plan for your death and incapacity (if you control the trust).
     
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  14. flygo

    flygo Member

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    Does Bob borrow my money to invest? And then return all the profits back to me?
     
  15. Terry_w

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

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    Bob might, if you can control him!
     
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  16. Observer

    Observer Well-Known Member

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    @Terry_w Let's say the scenario is that an investor wants to buy some shares with his money reborrowed from paid off PPOR's split. The investor wants to use his family trust with corporate trustee which he controls. How does this usually happen in this scenario? Is that via a trust loan. Is the loan returned?
     
  17. Terry_w

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

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    The person would need to lend to the trust. If they all want to claim interest the loan would have to be commercial terms and rates. The rate to the trust would need to be at least the amount charged by the bank to the person, but there is an argument that it should be higher.

    Terms of the loan will be agreed to by the parties. You may or may not want your money back at the end of it or you can later forgive the loan if you want (perhaps in your will). But in most cases it may be better to get your money back.

    see
    Legal Tip 113: Funding the Deposit for a new Trust Purchase of Property https://propertychat.com.au/communi...it-for-a-new-trust-purchase-of-property.7448/
    its about a trust that buys property but the same principals apply to shares.
     
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  18. Observer

    Observer Well-Known Member

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    Thanks @Terry_w! Looks like exactly what I've been looking for. I'll have a look.
     
  19. Nodrog

    Nodrog Well-Known Member

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    Like the plan, similar to what we did but we don't have children.

    The benefits of Super are huge from a tax minimisation perspective. But we still chose to focus on building the Trust assets initially as there is no age restrictions on access. As I in particular, being able to access Super 6 years earlier than wife, got within 5 - 10 years of preservation age I then started to invest more into Super.

    Then as I got even closer to preservation age I sold / transferred some assets in own name and Trust to contribute to the SMSF. I incurred some CGT in the process to get these assets into a lower tax environment. But I had no regrets about the CGT as having early access to our money was far more important. Note that a sharemarket crash is a great time to transfer assets in own name / Trust to the SMSF in order to minimise CGT.

    The other thing we still do with excess income / CG from the Trust is for both of us to make maximum concessional contributions to the SMSF now we're retired. Outside of Super taking advantage of the tax free thresholds, income splitting, franking credits and personal deductible Super contributions results in a good tax outcome. Combine that with a tax free Super pension (and excess in accumulation after 1 july capped at 15% tax) the overall tax outcome is excellent.

    So it's possible depending on your level of wealth that favouring a Trust over Super for ability to retire early may incur more tax. Of course each person's situation will be different and outcome in part dependent on quality of advise and structures used etc. But as far as I'm concerned some extra tax is a small price to pay to have the choice of early retirement. Another important point is that the closer you get to Super preservation age the less the risk that any age change is likely to affect you.

    So in summary if early retirement is a primary goal then accumulating assets outside of Super in a structure such as a family trust (plus bucket company if suitable) takes priority. Once the early retirement goal is achieved then Super can be given greater priority. As one gets closer to preservation age assets can be transferred to Super (at optimal times to minimise CGT) in order to reduce tax when able to commence a Super pension.

    Layperson view only, not liscenced to give advice:).
     
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  20. Terry_w

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

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    So that is how you retired early!
     
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