Trust & Company Dilemmas for Small Business

I have an eBay business that is profitable & worthwhile if I keep under the $75k GST threshold ... it is earning profits of about $20k before tax with $75k revenue.

For the past 12 mths, I operated as a sole trader and when I reached $70k revenue a few weeks ago, I established a private company to take over the business activities (just using one of the online company creation websites). myself as director and shareholder.

I've kept using my personal bank accts in the short terms whilst other business accounts are being set-up.

However after a discussion an accountant, I am now thinking it would be worthwhile to set-up a discretionary trust to use my son to pull out $3k profits per year. So for a bit of effort to set this up, I can save about $1300/yr roughly.

So now I have some very basic & hence embarrassing trust questions ....

1. is it worthwhile to create the trust? if so .....

2. how do I change the pty ltd company to a non-trading trustee company? do I have to do something? do i have to cancel the pty ltd ABN? any costs?

3. is the appointer myself?

4. is the trustee my pty ltd company?

5. who is the settlor if I use an online website like ozcorponline to create the trust? should i just use my wife or a friend?

6. are the beneficiaries myself and my son? can i list beneficiaries and not distribute to them?

7. if the business model fails in a year or two, could i leave the profits in the trust and pull out $3k every year for a few years and essentially pay zero tax?

8. do I still pay the $210 approx per year to ASIC for the pty ltd non-trading trustee company?

9. is a tax return needed for the pty ltd company if it is non-trading trustee company?

10. can i back-date the trust to a few months ago, to avoid the complications of having to submit a tax return for only 1 or 2 mths of trading.

11. does my son need a TFN?

12. does my son need to submit a tax return?

13. for simple home-office type expenses, are the deductions comparable between a company & trust?

14. are there any annual fees for a trust?

15. are the above questions ridiculous and should I just see an accountant? I just paid almost $200 to amend my 2009 tax return so it would be nice to avoid if possible

16. in summary, is it as easy as .. create trust online & apply for trust ABN, change pty ltd to non-trading trustee company & cancel pty ltd ABN, and then change name of bank accounts to trustee bank accounts.

 

Hi

1. Yes, always wise to have a trust I think.

2. Stop the company trading and have the appointor of the trust appoint it as trustee. Have a meeting of company officers and decide to accept the position of trustee.

3. I haven't seen your trust deed - but it should possibly be you or some entity you control. The appointor is the one with the power so you want to control it (but also possibly don't want to be seen as controlling it)

4. The trustee could be anyone. It could be your company.

5. The settlor is the one who asks for the initial property to be held in trust. It is usually up to you to find someone, but this person should never be a beneficiary of the trust for tax reasons (In Australia anyway).

6. The beneficiaries are usually a few named people and then many classes of un named people such as children, parents, cousins etc of the named beneficaries. You should ask your lawyer about the implications of naming people beneficiary.

7. No. If a trust does not make a distribution then the trustee pays the tax on the top marginal rate.

8. Yes

9. Yes. But if it isn't trading it won't have any income so this should be very simple.

10. Yes you can back date, but this would be illegal. You will also have problems as your back dated entity wouldn't have an ABN at that time.

11. Probably not until he starts working. Children don't need TFNs for trust distributions if the trust tax return shows their full names and addresses

12. Probably not, unless he has other income.

13. Should be

14. Just tax returns usually. You may also need to get some advice Deeds probably need to be updated every few years.
Stamp duty may also be payable on the trust deed initially. In NSW this would be $500.

15. Not ridiculous, but you don't really know what you are doing. If you set the thing up wrongly you could be up for a lot of money to fix it.

16. Not really. Your company will still need its ABN and TFN and your trust will need its own TFN and ABN too. New bank accounts need to be opened. Assets of the existing company need to be considered. If it has assets such as goodwill then how do your transfer this to the trustee? What are the tax implications, stamp duty implications, asset protection implications. Is the director of the company breaching his duties if these are transferred under market value?

You also have not considered the alienation of personal services income. Just because you are running a company or trust doesn't mean that the income will belong to the company or trust. You need to pass certain tests or the person behind the entity may be taxed personally.