oh yeah, trusts have a lot of rules on them. In fact, quite a few listed companies are trusts - notable examples are Macquarie bank who tend to buy all these infrasructure assets, group them together and then listed them on the ASX. Don't for a second thing they are some dodgy practice: it's simply one of four ways you can structure your business holdings (the others are being a sole trader, in a partnership, or in a company).
I think the point Mike makes is valid - don't freak out your investors. Before you get too tricky with what you are doing, get some paid professional help and clearly document your rationale. You don't want to make it too complicated, not just because it makes people nervous, but because of the additional compliance costs. I've spent hours looking at dozens of companies that have matured, thinking how the hell did they get to such a mess that no one understands - and its because someone got tricky early on and left, didn't monitor it and the rest - and now pay the consequences through extra costs. As for CGT events, your accountant isn't an oracle. All you need to know is a) You pay CGT when an event triggers it. Can be as broad as when you have a fire, sell the rights to something, transfer countries, etc. So just assume CGT occurs; the question is which event, as each event has a different way of calculating the CGT. b) It's all listed on the following list - and the only additional thing you need to know, is that the event that is applicable to you is the more specific one. Here is the list summarised by theme (refer table on right): http://www.ato.gov.au/individuals/content.asp?doc=/content/36547.htm Here is the original legislation: http://law.ato.gov.au/atolaw/view.htm?docid=PAC/19970038/104-5 Elias Bizannes Mobile: +61 412 338 508 E-mail: [email protected] DataPortability.Org - SiliconBeachAustralia.Org Chat: Skype: elias.bizannes [image: Linkedin] <http://www.linkedin.com/in/eliasbizannes>[image: Facebook] <http://www.facebook.com/profile.php?id=501903123>[image: Flickr]<http://www.flickr.com/photos/liako/>[image: Twitter] <http://twitter.com/liako>[image: del.icio.us]<http://delicious.com/liako>[image: Blogger] <http://liako.biz> On Tue, Dec 23, 2008 at 9:55 AM, Simon Gilligan <[email protected]>wrote: > I'm still picking my way through this :-) > > But I've been told Unit Trusts (as opposed to Discretionary Trusts) still > have the rigour of a company structure. There's directors, a central > trustholders agreement (units are issued rather than shares) .. and I'm > assuming all ASIC rulings/compliance still apply. > > 2008/12/23 Mike Cannon-Brookes <[email protected]> > > >> First - let me say IANAL. >> >> Second - let me say that investors want to see a 'normal' corporate >> structure. I would personally be worried about buying into a unit >> trust. Investing, I want to buy normal shares in a normal company. Now >> I may buy those shares with _my_ unit trust, but that's up to me. >> Similarly the founders may have their own trusts that own their shares >> in the company, but I wouldn't do the investment at the trust level. >> I'd want the normal share controls (board, shareholders agreement, >> ASIC rules etc) to be in place to protect my shareholding. >> >> Sorry if I misunderstood - just chiming in with my $0.02. >> >> m >> >> On Tue, Dec 23, 2008 at 9:44 AM, Simon Gilligan <[email protected]> >> wrote: >> > Many thanks for that Geoff and Elias, >> > >> > Lots of detail! >> > >> > From what I can see, a Unit Trust seems the way to go. Especially for a >> > startup where it's all about the capital gain. If we can minimise taxing >> > that .. why wouldn't you? If an investor balked at buying into a Unit >> Trust >> > rather than a company .. perhaps they aren't the right investor to get >> > involved? From what I understand, one drawback of a UT though, is >> earnings >> > must be paid out each year. With loan accounts the money can actually >> stay >> > in the trust, but the tax must be paid at the recipient level .. sort of >> > making it franked. >> > >> > I setup my business as a company, and now am thinking of restructuring. >> BUT >> > as Geoff has pointed out, changing structures will cause tax events >> which if >> > hefty enough, might stop me from going ahead. I'm still investigating. >> > >> > 2008/12/23 Geoff McQueen <[email protected]> >> >> >> >> Awesome advice and detail Elias. >> >> >> >> >> >> >> >> Since we're talking about setting up a company, I thought I'd share >> with >> >> you another strategy I've heard of, which can be handy in an >> increasingly >> >> litigious world: >> >> >> >> 1. register a Pty Ltd company for trading, >> >> >> >> 2. register another Pty Ltd company which owns 100% of the >> trading >> >> company. This second company holds all IP and other valuable things for >> your >> >> "business", and licences them to the trading company; and, >> >> >> >> 3. then created a discretionary trust which owns all of the >> shares >> >> in the holding company, where you act as the trustee. >> >> >> >> >> >> >> >> If you want even more power/protection, you can make yet another >> company >> >> the trustee of the discretionary trust. >> >> >> >> >> >> >> >> Most of this is for asset protection reasons since directors keep >> coming >> >> under more and more risk these days. In the example, getting sued in >> the >> >> trading company wouldn't cause as much damage because the IP and >> trademarks >> >> are held by the holding company, which could choose to licence them >> >> somewhere else if the trading company got into trouble. And, from a tax >> >> perspective, the discretionary trust could channel dividends or capital >> gain >> >> benefits from the holding company to whomever they like, as per Elias' >> >> suggestion. >> >> >> >> >> >> >> >> The benefit of having a corporate trustee is that another >> >> non-natural-person is in control of the trust, providing still more >> asset >> >> protection; you don't need to own shares in this entity, just have >> control >> >> over it, which is an asset protection thing. >> >> >> >> >> >> >> >> In terms of selling shares in your business by raising a round or >> >> something, you would trade in securities in the Holding company – the >> trust >> >> effectively remains your own asset holding vehicle, again, providing >> asset >> >> protection since you're likely to be the director and facing liability >> for >> >> the "risky" (even though they shouldn't be) activities of the trading >> >> entity, providing directors guarantees and so on and so forth. >> >> >> >> >> >> >> >> This might sound a bit over the top and complicated, and it probably >> is, >> >> but from the advice I've gotten, one of the risks of just going in and >> >> registering a company and being a director and holding the shares in >> your >> >> own name as a natural person is changing the ownership to a >> discretionary >> >> trust later triggers (I think) a capital gains tax event, which you >> >> certainly don't want to have happen – you'll be paying tax on the >> change in >> >> the paper value of the business, even if you've just sold it to >> yourself and >> >> you're still ploughing all revenues back into growing the company, >> creating >> >> quite a headache. However, setting it up right the first time just >> requires >> >> a few more bits of documentation: you can even do your tax for the two >> Pty >> >> Ltd companies as a consolidated entity if you like, reducing reporting >> and >> >> audit/accounting costs, particularly while you're starting up. >> >> >> >> >> >> >> >> In terms of discretionary vs. unit, I can't imagine having a "company" >> >> (where the concepts of relative equity through shareholdings) happens >> with a >> >> discretionary trust. As the name suggests, the spreading of income – >> >> equivalent to "dividends" – is at the discretion of the trustee, which >> would >> >> make it close to impossible to have more than one shareholder (I >> believe); a >> >> unit trust on the other hand has "units" which can be thought of as >> shares, >> >> so knowing the difference between the two is important. >> >> >> >> >> >> >> >> Finally, one thing you might want to consider in all of this is how is >> >> "looks" or "smells" to people who might want to get involved down the >> track >> >> as investors or lenders. Going to a bank with a company structure is >> likely >> >> to be more straight forward – particularly in these times with >> suspicious >> >> lenders – than going in with a trust – unit or discretionary. This >> probably >> >> isn't the case with more sophisticated lenders, but with banks looking >> for >> >> anything as a reason to raise your risk profile, I'd be keeping that in >> the >> >> back of my mind. >> >> >> >> >> >> >> >> While often posts on this list end with "make sure you get professional >> >> advice", this is one area where it really really really is important. >> >> Changing structures can cause CGT and other tax events, and as Elias >> >> mentioned, the plans for the future with income from off-shore and >> >> beneficiaries (or shareholders) also being offshore can make a real >> >> difference, so a dollar invested now is likely to be well worth it if >> your >> >> business ends up kicking on. Contact me off-list if you'd like a few >> >> recommendations on people to talk to. >> >> >> >> >> >> >> >> Geoff >> >> >> >> >> >> >> >> From: [email protected] >> >> [mailto:[email protected]] On Behalf Of Elias >> >> Bizannes >> >> Sent: Tuesday, 23 December 2008 1:33 AM >> >> To: [email protected] >> >> Subject: [SiliconBeach] Re: Unit Trust vs Company >> >> >> >> >> >> >> >> Ah crap - I made a mistake. Even though I mentioned unit trust, I >> actually >> >> described the benefits of a discretionary trust. You don't get that >> >> flexibility with a unit trust, although it still holds that the income >> >> distributed keeps its character - so if you distribute non-Australian >> income >> >> equally to the unit holders, a person who is a non-resident wouldn't >> pay >> >> tax. For those that don't know, a unit trust is where people hold units >> in >> >> the trust and receive distribution in accordance to how many units they >> >> have; a discretionary trust allows the trustee more flexibility to >> determine >> >> who get what. >> >> >> >> What I described about the CGT discount is still correct and the main >> >> reason why trusts are better over companies. >> >> >> >> On Tue, Dec 23, 2008 at 1:12 AM, Elias Bizannes < >> [email protected]> >> >> wrote: >> >> >> >> Unit trust is taxed at the hands of the receipients, which gives you >> >> flexibility in shuffling the tax burden - whereas a company is simply >> taxing >> >> income equally and distributed to shareholders without consideration >> for >> >> their individual tax situation. So for example, you could distribute >> >> overseas income to your non-Australian business partner and avoid tax >> >> legally (as it's a non-resident deriving non Australian sourced income; >> >> under a company this would be taxed as it's a resident for tax purposes >> and >> >> therefore the income is assessable) and you could distribute up to 6k >> to >> >> several people in your family who don't work as that will be tax free >> due to >> >> the personal threshold (again, under a company, that'd receive the post >> >> taxed dividends). In terms of capital gain, this is included in an >> >> individuals personal tax situation (CGT does not occur at a partner >> level >> >> for example; it occurs at the marginal rate of tax at the individual >> level). >> >> So going on the above example, you can distribute overseas gains to >> >> non-Aussie residents to avoid paying tax, etc. >> >> >> >> Also, with CGT on individuals & trusts they get a better discount (50%) >> >> than companies when calculating the gain (companies don't get the >> discount). >> >> There's another method called indexation when determinining what the >> capital >> >> gain is, but this only applies to assets pre 1999, and which is equal >> across >> >> the board - so no difference between trusts and companies under that >> method. >> >> >> >> I wouldn't point this out for startups as it's more a case for longer >> term >> >> businesses, but for completeness of knowledge, small businesses get a >> series >> >> of discounts on CGT. >> >> >> http://www.ato.gov.au/busineses/pathway.asp?pc=001/003/089/001/007&mnu=&st=&cy=1&mfp= >> >> >> >> I hope that helps. >> >> >> >> Elias Bizannes >> >> Mobile: +61 412 338 508 >> >> E-mail: [email protected] >> >> DataPortability.Org - SiliconBeachAustralia.Org >> >> >> >> Chat: Skype: elias.bizannes >> >> >> >> >> >> >> >> On Tue, Dec 23, 2008 at 12:26 AM, Simon Gilligan < >> [email protected]> >> >> wrote: >> >> >> >> Hi all, if you were setting up a new company tomorrow, would you >> >> setup as a unit trust or company? Recent advice I've had is that a >> >> unit trust is a better vehicle with better tax control over capital >> >> gain. Is there any experience out there regarding this? >> >> >> >> >> >> >> >> -- >> >> Elias Bizannes >> >> http://liako.biz >> >> >> >> >> >> -- >> >> Elias Bizannes >> >> http://liako.biz >> >> >> >> >> >> >> > >> > >> > >> >> >> > > > > -- Elias Bizannes http://liako.biz --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Silicon Beach Australia" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/silicon-beach-australia?hl=en -~----------~----~----~----~------~----~------~--~---
