Why Should You Use A Corporate Trustee Instead of Individuals For A Family Trust?

Why Should You Use A Corporate Trustee Instead of Individuals For A Family Trust?

A family trust is a great structure.  It provides tax flexibility whilst giving you asset separation in two directions.  But what does asset separation in two directions mean? And why might we suggest it to you as a recommendation?

First of all, why do you want asset separation? If there are multiple assets, you want to make sure that if someone makes a claim against the owner of a particular asset that your other assets can be quarantined from that claim. This isolation will mean that they can’t gain access to the assets that are yours and separate from the claim.

If you own a business and have a successful financial claim made against your business where the claim is for an amount that is more than the assets of the business, you will first need to use the business to cover the claim, and then find something additional to supplement the shortfall.

In this case, if you also own your own home, and its worth is enough to cover that shortfall, it may be used to meet the claim by combining the business assets’ worth and the family home’s value. You could lose your family home!

However, if we structure your business in a particular way then the person making that claim will only have access to the assets in the business and you will be able to keep your family home.  

This is what is called asset separation. Generally, it’s a good thing to employ, but it does have one flaw – it usually only goes one way.

If someone claims on your business, they won’t get the house but if they successfully make a financial claim against you, they will successfully get all of the assets that you own, including those of your business.  This is a risk that you must be willing to take if you own a business.

When you operate a business through a family trust instead of owning that business, you will merely “control” it, and have but a “mere expectancy” of being considered in the distribution of any profits or capital from that business.

The good part here is that although you only have a mere expectancy to be considered, we would set it up so it is YOU that “considers” who gets the money.  This means that if someone makes a claim against you then they can’t get access to assets in the family trust. What this does is give you two-way asset protection.

There is a bit of an issue with family trusts though – although you will see the debts of the trust as debts of the trust at law, they are in actual fact the debts of the trustee. If you are the trustee, all of the debts of the trust are your personal debts. You can use the trust assets to pay down those debts, but if the trust assets are insufficient to pay the debts, it will be up to you to pay off the rest.

When you’re an individual trustee of a trust, you lose the perk of asset separation, which is why a company may be used as a trustee, as the company does nothing other than act as the trustee of the trust. If there are insufficient funds in the trust to cover the debts of the trust, then those debts fall on the trustee and the creditors have no access to your personal assets because you have no individual debts owing.

Want to know more about asset separation? Interested in trusts? We’re here to help.  Call Graham or Donna at Concord Tax on 07 4773 4088

It’s Tax Time in Townsville!! Get ready for your Concord visit.

It’s time for you to prepare for your tax return appointment.  We certainly hope you get a good refund this year, and look forward to finding every deduction available to you in your circumstances.  Taxation is a complicated area.  There are changes to the laws and rules every year.  A small mistake can have a huge effect, and getting it right can greatly improve you refund outcome.  We have included a list below of the things you will need to consider when preparing for your return appointment.

Collect All your Income Information.

  • Payment Summaries from each Employer.
  • Bank interest you have earned during the year.
  • Centrelink Statements.
  • Dividends from shares.
  • Managed Funds Annual Taxation Statements.
  • Rental Property data like the rent manager’s statements.
  • Private Health Insurance Annual Statement.
  • Any other Income.

Collect All the information on your Deductions.

  • Motor Vehicle Kilometres travelled on work.
  • Travel Expenses for out of town work like airfares, accomodation, food and incidental expenses.
  • Uniform, protective clothing expenses, protective footwear, and occupation specific clothing like with nurses and chefs.
  • Union or Professional membership fees.
  • Work related computer, Internet, home office expenses.
  • Work related stationery.
  • Tools & equipment etc.
  • Any other Expenses.

Here are some external links to help you find some specific tax deductions which may help you this year if you work in four key occupations.

Nurses  https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Deductions-for-specific-industries-and-occupations/Nurses-midwives-and-direct-carers—claiming-work-related-expenses/

Teachers  https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Deductions-for-specific-industries-and-occupations/Teachers—claiming-work-related-expenses/

Tradies  https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Deductions-for-specific-industries-and-occupations/Building-and-construction-employees—claiming-work-related-expenses/

Retail https://www.ato.gov.au/Individuals/Tax-return/2016/In-detail/Publications/Shop-assistants-2016/

Remember our fee is a tax deduction and will almost always give you a great return on investment in your tax refund.  You can pay on the day by credit card or Eftpos, or you can pay nothing up front and have the fees deducted from the refund.

You should also consider making an appointment through our website,   https://www.concord.tax/contactus .  It is a convenient way to select the times that would suit you best and also give you the opportunity to have your appointment with your preferred accountant.

Happy Tax Season

The Concord Team

Donna, Dharmesh, Kerry, Ariana, Carol, and Priyanka

Rental Property Update

The ATO is focusing on rental property owners to make sure that their deduction claims are accurate.

Here are the areas they are working on:

Interest Expense Claims on Rental Property

Your interest claim must equal the amount of interest relating to the borrowing for the rental property.  Don’t include any borrowing for any other purpose.  Private purpose draws on the rental loan will reduce the amount you can deduct as interest.  Interest is often a big ticket item.  As a result a mistake makes a sizable difference to you tax outcome.

What is your share of Rental Income and Expenses between owners of the rental property

You should claim your part of the rental property income according to the ownership you have in the property.  The way that rental income and expenses are divided between co-owners varies.  They are based on whether the co owners are joint tenants, tenants in common, or there is a partnership.  Joint tenants each hold an equal interest in the property.  They share the income and expenses on a 50:50 basis.  Tenants in common may hold unequal interests in the property.  For example, one person may hold a 20% interest and the other an 80% interest. This is usually written on the Contract of Sale document.  However, if you are carrying on a rental property business your share will be in proportion to your share of ownership in the business.

Rental income and expenses must be shared correctly to each co-owner according to their legal interest in the property.  This is irrespective of any agreement between co-owners, either oral or in writing, stating otherwise.

Travel Expenses now stopped

Travel expenses for inspecting, maintaining, collecting rent, repairing, or seeing your tax agent are no longer deductible backdated from 1 July 2017.  There is an exception for landlords of commercial property or when you are carrying on a business of rental properties.  Therefore you will most likely have less tax deductions for your rental property this year.