Whilst the ATO has announced recent Federal funding to audit taxpayers who have been involved in tax evasion or avoidance using trusts, appropriate use of trusts can be an effective way of protecting your assets.
Knowing how to structure your business so you get the best out of it for you and your family is vital.
Without sufficient protection, if you are a sole trader, all your assets are up for grabs. One option for a sole trader to protect his or her assets is to put them in the name of their spouse, however this is not always without its own complications. The advantages, or otherwise, of setting up a trust will depend on the individuals circumstances.
Traditionally a lot of family businesses have been run through trusts, where advantages include providing flexibility as to where income is distributed, and in circumstances where a family member dies, the trust continues and ownership of the assets of the trust are not affected. Income distribution flexibility can be particularly useful where income levels can vary for each member due to personal circumstances such as loss of job. However, the tax advantages of distributing to children under the age of 18 has long gone, as punitive rates of tax apply, effectively removing any tax advantage.
Whilst the popularity of trusts is undisputed, it is not simply a matter of one size fits all. There are various pros and cons, so businesses need to approach trusts with both eyes open. It is important to note that once an income distribution had been made to a trust beneficiary, the beneficiary is entitled to receive that income. Costs for the establishment, and ongoing management and compliance also need to be taken into consideration.
If you are time poor, and juggling the ongoing demands of your business, talk of trusts, income distribution and tax obligations may leave your head spinning. Make time to talk to us as your professional adviser about setting up a trust, including discussing compliance, costs, asset protection, the ability to distribute income to family members, access to capital gains and succession planning.
Excerpt from our Summer Newsletter 2013
Disclaimer: Any information in this document is general only and does not take into account the objectives, financial situation or needs of any particular person and therefore is strictly not intended to be financial or taxation advice. You should obtain financial and taxation advice relevant to your specific circumstances. Whilst every care has been taken in the preparation of this information, SJW Accountants do not guarantee the accuracy or completeness of the information.