Family Trust good for business?

[Lukey13]

Hi everyone

I would like to get some rough ideas on whether some kind of structure involving a Family Trust might be beneficial for my situation.

My wife and I both receive decent Government salaries which we utilise most effectively by salary packaging mortgage repayments, electricity, superannuation and novated leases for two new cars. However, I also run a medical-based private practice part-time from which I earn another reasonable income.

Last visit to my accountant he suggested that I consider a structure involving use of a Family Trust (and another type of trust or entity?) by which my business income could be distributed between my wife (on lower income) and me. In addition, a certain amount (only a couple of grand) could be distributed to my baby who obviously doesn't pay any tax.

Currently my business is nearly all income with only around 15% overhead costs.

(a) Does a Family Trust structure sound reasonable for this basic scenario?

(b) Would it be more tax effective to purchase a car through the business (perhaps a trust/company?) and utilise the 50% Business Investment Incentive deduction or to simply continue my salary packaged novated lease through Government? (I probably only travel around 5,000km between two jobs)

(c) If I use a Family Trust type structure for business, should I put an investment property or two in there in order to deduct the negative gearing against business income? A handy use of this might be to sell our current PPOR to the trust as an IP (incurring stamp duty) in order to pull out equity to put into a new PPOR, minimising non-deductible debt.

 

[josko]

Hi everyone

I would like to get some rough ideas on whether some kind of structure involving a Family Trust might be beneficial for my situation.

My wife and I both receive decent Government salaries which we utilise most effectively by salary packaging mortgage repayments, electricity, superannuation and novated leases for two new cars. However, I also run a medical-based private practice part-time from which I earn another reasonable income.

Last visit to my accountant he suggested that I consider a structure involving use of a Family Trust (and another type of trust or entity?) by which my business income could be distributed between my wife (on lower income) and me. In addition, a certain amount (only a couple of grand) could be distributed to my baby who obviously doesn't pay any tax.

Currently my business is nearly all income with only around 15% overhead costs.

(a) Does a Family Trust structure sound reasonable for this basic scenario?

(b) Would it be more tax effective to purchase a car through the business (perhaps a trust/company?) and utilise the 50% Business Investment Incentive deduction or to simply continue my salary packaged novated lease through Government? (I probably only travel around 5,000km between two jobs)

(c) If I use a Family Trust type structure for business, should I put an investment property or two in there in order to deduct the negative gearing against business income? A handy use of this might be to sell our current PPOR to the trust as an IP (incurring stamp duty) in order to pull out equity to put into a new PPOR, minimising non-deductible debt.

Hey Lukey,

a) We use a family trust for our business. Sounds like you have a good accountant there.

b) Apparently, it is more effective to purchase your car under the Trust. There are FBT issues involved and you will need to talk to your accountant about that.

c) I personally would not mix up Investments with my businesss. I have kept everything seperate.

Consider that a bank can potentially attack every asset held within that Trust should you fall into bad times.

What you can do is set up another Trust that can hold your properties for you. Watch the Land Tax Issue and again speak to your accountant about this.

Regards JO

 

[geoffw]

a) We use a family trust for our business. Sounds like you have a good accountant there.

If he was that good perhaps he should have suggested that some time ago?

What you can do is set up another Trust that can hold your properties for you. Watch the Land Tax Issue and again speak to your accountant about this.

A good point. Rules vary between states, but there can be issues with having to pay more land tax.

As for the novated lease- talk to your accountant. It depends hugely on your income, as well as other factors. (I used to run a car under a novated lease, which was worh doing under my then income og 80Kpa as that put me into the top bracket. That top bracket has been lifted enormously). You need an accountant who can walk you through all the scenarios, especially one who kowns trusts and companies well- somebody proactive about these things would be good.

I've just left one accountant who charged a lot, but was not proactive at all. My new accountant charges a lot less, and has already saved me a lot in several simple suggestions.

 

[GreatPig]

You might also want to check whether the nature of your medical-based private practice would fall under the personal services income rules. If so, then you wouldn't be able to split the income.

GP