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TRANSCRIPT
Business Structuring & Asset Protection
Strategies for Success
What will be covered Today?
1. Why is it critical to get your business and investment structures
right?
2. What tax minimisation and asset protection
structures/strategies are available for business owners?
3. What structuring/restructuring opportunities might be
available? And what are the benefits? (Case Studies)
4. What should you do if you are concerned?
Assets
What Assets do you have?
• Today?
• Future?
Assets
Assets
What Assets are worth protecting?
And why?
Business Assets
• Business Goodwill & Brand
• IP, Trademarks, patents, ‘Know How’
• Plant & Equipment
• Retained Profits
Business Assets
• Cash at Bank
• Investments - Business Premises, Shares
• Debtors
• Interest in JV’s
Personal & Investment Assets
• Family Home
• Investments
- Share Portfolio- Investment Property - Business Premises
Personal & Investment Assets
• Ownership of Business (eg. Shares in family company)
• Super
Risks
What risks are you subject to?
• In your business?• Personally?
Risks
Risks
So what are we protecting
ourselves against?
• Employees• Customers• The public• Clients• Partners • Creditors• Bank
1. Why is it CRITICAL to get your business and
investment structure right?
Asset Protection Strategy
Family Trust #1
Family Trust #2
Family Trust #3
XYZ Holdings Co Pty Ltd
Asbestos Removal Pty Ltd Digital Marketing Pty Ltd
33.33% 33.33% 33.33%
100% 100%
(High Risk) (Lower Risk)
Question
Why it is critical for you to have an Asset Protection Strategy in place?
Answer
• Provide protection for your business and personal assets – if something goes “wrong” in your “business” or “personal” world.
• “Quarantine” your assets from risk.
• Create “layers of protection” between your assets and your risks to make it harder for someone to attack you.
What is the key to Asset Protection
for business owners?
• Create an ownership structure whereby you own nothing (personally) yet control everything.
• You will still have easy access to the assetsand the income they generate.
• But the assets will not be taken off you by creditors if something goes wrong in your business.
2. What tax minimisation andAsset protection structures/strategies
Are available for business owners?
Identify Appropriate Structures
• There are a variety of tax structuresavailable
• They provide different levels of;
- Asset protection
- Tax minimisation opportunities
- There will be “trade offs”
An individual trading in their own name or a group of people or entities carrying on a business.
A legal entity separate from its shareholders.
Holds an asset or income for the benefit of others (beneficiaries).
SOLE TRADER/PARTNERSHIP
COMPANYDISCRETIONARY
TRUST
Business StructuresThe basics
Business Structure is critical
Things to consider:
• “Begin with the end in mind”
• Tax minimisation opportunities
• Availability of limited liability
• Incoming/Outgoing owners/Investors
• Suitability for equity raising
• Suitability as an asset protection structure
• Quarantining assets from “risks"
• Access to capital gains tax discounts and concessions
• Understandability / ease of planning
What existing structures do you have?
• Sole Trader
• Partnership
• Company
• Discretionary (Family) Trust
• Fixed (Unit) Trust
• SMSF
Sole Trader (Individuals)
• Typically used by start ups.
• Simple & inexpensive.
• No distinction between individual and
business.
• No asset protection benefits for personal assets of individual.
• Business profits taxed at individuals personal marginal tax rate – no tax flexibility.
Partnerships
• Typically used by start ups.
• Simple & inexpensive.
• Involves 2 or more individuals or entities.
• No asset protection – for partners personal assets.
• No distinction between individuals assets and assets of partnership.
• Each partner exposed to potential liability for actions taken by the other.
• Earnings of partnership taxed as each partners marginal tax rate.
Companies
Mega Group
Pty Ltd
- Operates
Business
- Owns Assets
- Employs Staff
(Assets & Risks)
DirectorDad
ShareholdersMumDad
• Company has it’s own legal identity.
• Has it’s own; assets, liabilities and tax rate.
• Offers asset protection benefits – because owners assets are separate from company’s assets.
• Lower tax rate (27.5%) than many individuals.
• Liabilities incurred by company belong to company (Concept of “Limited Liability”).
• Owners are not exposed to trading risk (unless trading insolvent or directors have provided personal guarantees).
Trusts
HYD DISCRETIONARY TRUST
(Trading Entity)TFN: XXX XXX XXX
ABN: XX XXX XXX XXX
Type of Trust
Discretionary Trust
HYD HEALTH PTY LIMITEDACN: XXX XXX XXX
Director(s):Paul Joe
Shareholder(s):Paul 50 ORDJoe 50 ORD
Trustee
Trustee Company
Discretionary Trust
BeneficiariesMum Dad Kids “Bucket Company”
• Most flexible structure.
• Underutilised by business owners.
• Used extensively by the “wealthy” – to protect assets and minimise tax.
• Offer excellent asset protection (Allow business owners to “control” assets” without owing” them).
• Very Flexible in allowing income to be distributed to various beneficiaries to “minimise family tax”.
Business StructuresMore Advanced
UNIT TRUSTCONSOLIDATED
GROUPS
BUSINESS STRUCTURE
COMBINATIONS
Unitholders contribute unit capital to the trust. Fixed entitlement to distributions.
There is no ‘one size fits all’ when it comes to the most appropriate structure for your business.
Significant tax planning opportunities. (Complex)
3. What structure/restructuringopportunities
Might be available?And what are the benefits?
Choose the Best Structure for you.
• What Structure is “optimal”?
Things to consider;
• There is no single best structure.
• Often a combination of structures is recommended.
• All structures have advantages and disadvantages.
What is most important to you?
• Asset Protection – Business, personal, investments.
• Limiting Liability – Protection for owners/directors.
• Income tax – minimisation opportunities.
• Access to small business CGT concessions and discounts.
• Flexibility – Incoming and outgoing owners.
• Protection for directors.
• Suitability for raising finance/equity.
• Minimisation of other taxes;Payroll tax, workers compensation insurance, FBT.
• Simplicity & understandability vs complexity (and cost).
“Significant tax minimisation can often be achieved through identifying opportunities within your business”
So…. LetsGet Creative
Case Study 1
Converting from a Sole Trader to a Company
Sole Trader
• David runs a lawn mowing business in his own name.
• David applied for an ABN and ‘commenced operations’.
Sole Trader
• The business has grown substantially over the past few years, and David is now making considerable profits.
So why change?
• Asset Protection• Ability to minimise tax• Stronger ability to borrow funds• Ability to ‘share your toys’
How do I change/what structure do I change to?
Company
• ‘caps’ tax rate in growth stage of business cycle.
• Stronger ‘asset protection’.
• Allows a business partner to be brought in.
• Stronger position to borrow funds from bank.
Case Study 2
Restructure existing company for growth and sale of business in 5 years time.
Original Structure
Bob’s Spare Parts Pty Ltd
‘Risk’ ‘Risk’ ‘Asset’ ‘Asset’ ‘Asset’
Mum Dad
50% 50%
Owns
Customer
List
Employs
Staff
Owns
P & EOperates
BusinessOwns IP
Original Structure
• Manufacturing company.
• Mum and dad own 50% of shares each personally.
• $2m in retained profits eg. cash at bank.
• Trading company – owns assets and is exposed to trading risk.
• Assume business valuation $4m.
• Owner plans to grow business and sell in 5 years for $10m.
Strategy
• Utilised small business CGT concessions to restructure in to more ‘robust’ structure.
• To facilitate growth, minimise tax and protect assets.
Outcome
• Corporate structure (as per page 67 following).
• Separated risks and assets.
• Asset protection for $2m retained profits.
• Licensing of IP/ Customer list.
• Cost base of $4m for shares.
• Minimise future CGT on sale.
• Protect future profits from trading risks.
• Estimated tax saving – hundreds of thousands of dollars.
• Future income tax minimisation for family.
NEW STRUCTURE
INVESTMENT COMPANY PTY LTD ATF
DISCRETIONARY INVESTMENTS TRUST
OWNS CUSTOMER LIST OWNS IP
TRUST DISTRIBUTIONS
LICENCE FEE $
LICENCE AGREEMENT
ASSETS ASSETS
BENEFICIARIESMum, Dad, Family Members
TRUSTEE COMPANYPTY LTD ATF
DISCRETIONARY (FAMILY) TRUST
HOLDINGS COMPANYPTY LTD
TRADING COMPANY PTY LTD
EMPLOYEE COMPANYPTY LTD
PLANT & EQUIPMENT
PTY LTD
100%$2M TAX FREEDIVIDENDS
LOAN OF $2m(CAN BE SECURED)
100%100% 100%
ASSETSRISK RISK
A B
DIVIDENDS
COST BASE FOR SHARES $4m
Case Study 3
Transfer your own business premises into your Self Managed Superannuation Fund (SMSF)
Business Premises
SMSFProperty Transfer
� CGT Free
� Stamp Duty Free
Owned by Mum/Dad
COMMERCIAL PROPERTY
VALUE $4m
DEBT $3m
EQUITY $1m
- Transfer of Business premises into super
- Income tax in super is 15% on net rent
- CGT in super can be 10% on any future sale of property
- Pension phase
Case Study 4
The ultimate asset protection and tax haven – Self Managed Super Fund
Structure of self managed super fund
SMSF
Trustee
Controls the Fund
Expenses
- Holdings Costs
Assets
- Property &
Shares
Administration
Costs
Life Insurance
Concessional
Non
Concessional
Rental Income
Investment
Income
Contributions
Rollovers
15% Income Tax
10-15% CGT
Nil Tax – Pension Phase
Payments of Benefits to
Members
- Tax Free Lump Sum
- Tax Free Pension
Case Study 5
Buying an investment property in a discretionary trust
• Jane and Luke are wanting to buy their first investment property.
• Jane is a doctor, and Luke is a personal trainer, and neither have heard of a ‘discretionary Trust’.
• So why would Jane and Luke want to buy their first ever investment property in this structure called a ‘Discretionary Trust’?
Why?
1) Asset Protection
Isolates Risk
2) Still maintain capital gains tax savings
3) Flexibility on distribution of ‘profits’ from net income earnt from property
What is a Trust?
• A trust is a structure whereby an individual (or preferably a company) is the holder of an interest in property or assets on behalf of beneficiaries.
• The trustee “controls” the assets of the trust for the benefit of the beneficiaries.
• Ownership of the trusts assets is separated from the owners – the trustee holds the assets ‘on trust’ for it’s beneficiaries.
Advantages
• Limited liability
• Asset protection
• Tax planning
• Capital gains tax savings
Disadvantages
• Establishment cost, ongoing maintenance
and compliance requirements
• Trustee responsibilities and duties
• Land tax
Case Study 6Protecting the family home
(owned by “at risk” individual)
Family Home ($3m Market Value)
“Principal Residence”Advantages⇒CGT Exemption⇒Land Tax Exemption⇒Owners Equity Protection
$500K
John Smith
(Owner of Home)
Bank Loan
Discretionary (Family) Trust
Creditors
Available Assets
Home $3m
Loan: Bank 1st Mortgage ($500K)
: Trust 2nd Mortgage ($2.5M)
Equity Available for Creditors $ NIL
Step 1Gift $2.5m to Equity
Step 2Trust loans $2.5m back to John
1st mortgage over property
Step 32nd mortgage over property
($2.5m)
Case Study 7
Can you turn non-tax deductible debt into tax deductible debt?
HUSBAND WIFE
FAMILY TRUST
PTY LTD COMPANY
(RAIL INDUSTRY)
(BUSINESS VALUE
$1m)
FAMILY HOMEVALUE $2mDEBT $1m
Don’t forget CGT Consequences
Transfer
50%
ORIGINAL STRUCTURE NEW STRUCTURE
PTY LTD COMPANY
(RAIL INDUSTRY)(BUSINESS VALUE
$1m)
100%
(Sale of shares)
50%
NEW INVESTMENT
LOAN
Tax Deductible BorrowingsNon-tax deductible Borrowings
OLD HOME LOAN
$1m
50%
ASSUME – MARKET VALUE OF SHARES $1m
$1m
Payout old loan
4. What should I do if I am concerned?
Get AdviceBefore you need it!
QUESTIONS?
Special Offer
One hour complimentary meeting in our office to review your
existing structure(s) and highlight areas of risk and opportunity
Contact DetailsShoral O’Connor(02) 8543 6800
