This is not investment advice but my structures are set up along the following guidelines:
Companies are used to trade i.e. they can rent out property, sell goods and services, etc. This offers protection should the company do something wrong in a transaction.
Trusts are simply to own investments which may include companies, properties, shares, bonds, etc. This offers protection in that property and other investments can be excluded from any legal action against a company.
This is really one for you to sort out with your accountant/solicitor. Get a good one who specializes in this area. Be sure to ask about the upcoming (proposed) changes to trust law, although this is not likely to become totally clear until after the federal election.
You may want to check out some books on the subject. I'll check my bookshelf and give you some titles if I get the chance tonight. I think one called "Family Trusts" by Nicholas Renton springs to mind.
I was thinking about buying the book "Family Trusts" last year but noticed it was written in 1997 and I was not sure if it was still relevant due to the changes proposed by the Gov. Do you think it is worth buying?
The book is called
"Family Trusts: a plain English guide for Australian families of average means"
Written by: N.E. Renton
Published: 1997 by Wrightbooks
Even though it does not cover the details of proposed changes to the taxation of trusts, I still consider this to be a worthwhile addition to anyone's library due to its clear description of the workings and issues surrounding trusts.
If you are considering trusts then you will need to talk to your accountant and/or solicitor and having read this book first you will be up to speed on the basics which will help you immensely when discussing them.
As for taxation implications, people who know will you time and time again that the primary benefit of trusts is for asset protection. The taxation benefits are also important, but you need to weigh up your need to minimise tax or to protect assets.
That said, the proposed changes would in fact have been beneficial to those looking to buy-and-hold for long periods. This is a result of trusts being taxed as companies, and you would have the choice of retaining income within the trust rather than being forced to make a distribution each year. This means that while you are on a high marginal tax rate, you can retain income in the trust and only pay the 34% (30% soon) company tax rate on that income... way better than 48.5%
When you finally need to get your hands on that money (ie. in retirement perhaps), then you may be in a lower bracket (less than 30% perhaps) which means that you can make a distribution and get refunded the difference between your tax rate and the company rate. This also works for making distributions to non-working spouses right now too.
An example was given where you have children that eventually go to university. Once they are over 18 and no longer restricted by the penalty tax rates, you can make distributions to them to help put them through uni, and they get the advantage of a decent tax return each year because of the difference between their tax rate (low) and the company rate.
Remember, as the current tax law stands you MUST make a distribution every year and pay tax at the marginal rate of the person distributed to, and if you are a dual-income family with both on high marginal tax-rates then you will have to pay a lot of tax. You may be able to postpone some of these taxes by using a corporate beneficiary, but that's another discussion all together !
As for the loss of CGT benefits... if you are a buy-and-never-sell type person then you needn't worry... you won't incur CGT if you don't sell ! If you are a trader (ie. sell within a couple of years) then maybe trusts are not the most effective vehicle.
In short... don't take the media hype about the proposed changes at face value. Do some research... the proposed tax changes may actully be a good thing (depending on your strategy).
The most important thing to remember is that these changes were to come into effect on July 1st this year (not far away !). They have now been scrapped indefinately (electioneering !). My point is that proposed changes are just that... proposed. Don't count the tax changes on your chickens until they hatch the law.
Of course, what I have written should not be taken as advice. I am not qualified in these matters and may be wrong. You MUST seek the advice of a qualified solicitor and/or accountant when making decisions about trusts.
I have been away for a couple of days and just got back to the forum now - I still haven't been near my bookshelf. I see Sim and another Paul have already answered your questions.
In my opinion the first book is well worth the reading for background - whether you want to wait for the new version or not is up to you.
Having said this I would be wary of his new book for one reason only. No-one yet knows the outcome of the federal election and Beazley/Crean will have vastly different ideas compared to Howard/Costello. The new book in my opinion should be delayed until we have an outcome and clear guidance on what the law will be.
This should not however stop you from taking action now - there may be no change for all we know - or change may be a decade away.
I would buy, beg or borrow a copy - I don't advocate stealing ;-) and have a good read then talk to an accountant/solicitor.