Trading using my corporate trustee

Discussion in 'Accounting & Tax' started by scientist, 27th Feb, 2020.

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  1. scientist

    scientist Well-Known Member

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    I have a family trust with a corporate trustee (Trustee Pty Ltd). I want to run a business and I want to use Trustee Pty Ltd as the trading vehicle (i.e. it will be trading in its own right, not in its capacity as trustee). As part of this, I would need to get Trustee Pty Ltd its own ABN and register for GST.

    What are some consequences I may not have considered from these actions? If I register Trustee Pty Ltd for GST, would trust income suddenly be subject to GST?
     
  2. Trainee

    Trainee Well-Known Member

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    If trustee pty ltd is sued or becomes insolvent......
     
  3. Mike A

    Mike A Accountant Business Member

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    Personally and professionally id avoid it.

    It doesnt cost much to setup a new company and you could consider whether the current trust holds the share in new co.
     
  4. scientist

    scientist Well-Known Member

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    Thanks, considering all options at this stage, just want to understand the potential consequences of re-using a corporate trustee in this way.
     
  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    It will also become potentially confusing as many documents will be issued in the company name and some may relate to the trust and others wont.
     
  6. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    No. You are confusing two different entities already. Trust income would be subject to the tax registrations for the trust, not the trustee. The company would have its own registration distinct for the trust. Trust income is not a taxable supply in any event and is akin to suggesting a company dividend could pass through a trust and be subject to GST. Cant happen.

    If the trustee was to resolve to distribute from the trust to the company you may have a legal issue of concern. How can ABC Pty Ltd distribute to ABC Pty Ltd and does the deed even permit this ? Could another beneficiary attack this self interest concern ?
     
  7. scientist

    scientist Well-Known Member

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    Thank you @[email protected]!

    So I got so far -1) if trust gets sued, company assets liable 2) confusing letters all addressed to same entity but for different offices (office of the trustee and office of the company itself)

    What other consequences might I have not considered?
     
  8. Trainee

    Trainee Well-Known Member

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    What bad consequences have i not considered about giving myself a haircut with this weedwacker?

    better question. Why do it at all?
     
  9. Simon Hampel

    Simon Hampel Founder Staff Member

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    Does the trust hold any significant assets?

    You might be able to use the trust as the trading entity (rather than the trustee) ? I don't think this is a good idea if the trust holds assets for the same reason you wouldn't use the trustee to trade. I'm not sure of the implications of using a trust as a trading entity though - that's a question for the experts.

    As mentioned though - if you've gone to the trouble of setting up a trust, just do it properly and set up a new company to run the business. Have the trust be the shareholder in the company so you can distribute dividends to the trust and then on to the beneficiaries.

    If your trust doesn't hold assets, wind it up and then perhaps you can use the trustee company? Don't do it while the trust holds assets.
     
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  10. Mike A

    Mike A Accountant Business Member

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    And make sure you have a valid family trust election in place if dividends are being received by the trust
     
  11. qak

    qak Well-Known Member

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  12. Ross Forrester

    Ross Forrester Well-Known Member

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    Don’t use your trustee company to trade in its own right.

    It can create a lot of succession issues and asset protection drama.
     
  13. Trainee

    Trainee Well-Known Member

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    noticed that business owners, lawyers, accountants and everyone else thinks its a bad idea?
     
  14. Terry_w

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

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    What about loans and charges. Trust lending to the company - cannot contract, passing control while alive, dead or legally disabled, small business concessions, selling shares in company etc
     
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  15. scientist

    scientist Well-Known Member

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    Thanks everyone much appreciated
     
  16. Elives

    Elives Well-Known Member

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    i work for my self and trade using a family trust with a company as the trustee and me as the director is that bad? got confused by reading the above :D
     
  17. Terry_w

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

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    Depends what you mean by "work by myself" and "trade"
     
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  18. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    I have seen several people do this and they make some terrible choices when not seeking advice and doing this on the cheap. Like no constitution, non-resident directors, even a company that never issues any shares ! Saw one yesterday that had a constitution that appears based on some internet sourced document that was doctored in a very bad way that refers to President, Stocks (instead of shares) and it had rules that literally prevent a second (resident) director being appointed . Apparently they self-registered. And no shares were issued so a company without shareholders and a constitution which only allows stock (shares) to be issued to the "sole Director".

    What else did they get wrong ?

    Several years ago when I worked at Macquarie Group Services I was part of consultation by ASIC who were exploring the ability for people to self establish a company online. They were even considering a "standard" disc trust establishment as part of the process. I was horrified. So were all the lawyers involved. All this stopped them back then and now they allow it but take no responsibility. Just a mess and very costly to fix.
     
  19. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Alienation of income
    Personal Services Income
    Part IVA
    may all be issues. Workers Comp, super and other factors perhaps. A wide array of issues may mean the trust is good or quite concerning. eg trust elections, distribution resolutions and more.

    Remember tax is based on self assessment. Get the self assessment wrong and the tax problems accumulate.
     
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  20. Simon Hampel

    Simon Hampel Founder Staff Member

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    It's different to what the OP was suggesting - where he was going to use the trustee company to trade rather than the trust that you are using.

    I know of a few people operating a business through a family trust structure with a company trustee - so it's not uncommon.

    Unfortunately it's not a structure I have any experience with to know what the gotchas are. Obviously the stuff [email protected] mentioned - but many of those are also issues for regular company structures too.

    One assumes you got professional advice when setting it up? If you are unsure - you might want to double check with your adviser, even if just to verify that it's still the appropriate structure for you to use?
     
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