Welcome to the Operate in the Private group. We have set up this website specifically for listeners of the Know Your Rights group radio show – http://www.knowyourrightsgroup.com.au/radio-show/ – and we are here to assist those who want to find out more about trusts, private foundations and self managed superannuation funds.
We set up the following structures that may be of benefit to you, depending on your specific financial situation:
Trusts – Used primarily for asset protection
Private Foundations – Used primarily to operate your business “in the private” with no tax obligations
SMSF – Used primarily to take control of your own superannuation and retirement funds
Please note that we are neither lawyers nor financial planners and therefore, we make no representations what-so-ever about the benefit of any of these structures to you personally. You need to ascertain which, if any, of these structures would be of use to you given your own specific financial position.
The following information may be of assistance to you in learning the basic benefits of these structures:
A trust is a legal relationship whereby one person (the ‘trustee’) holds assets for the benefit of one or more other parties (the ‘beneficiaries’). A trust is created by a deed. The deed sets out the governance and operation of the trust, and the powers of the trustee.
The most common types of trusts are:
1. Discretionary Trust (also known as a family trust) is a trust in which the trustee is given the power/discretion to decide which of the beneficiaries are to benefit from the trust. It is an important vehicle for a number of reasons, which include:
- Asset protection – the assets of a discretionary trust are distinct from the assets of the beneficiaries of the trust and may be protected from creditors in circumstances where a beneficiary is sued or made bankrupt;
- Minimise tax – Probably the most important advantage for a discretionary trust is tax minimisation, indeed substantial minimisation, by way of flexibility because income can be diverted to people with lower rates. By distributing income and capital to beneficiaries on lower marginal tax rates and distributing different types of income to different beneficiaries (i.e. “streaming”) the overall tax paid by a family group could be reduced. Each beneficiary is liable to pay tax at their marginal rate on income distributions received from the trust in each financial year;
- Carry forward losses – a discretionary trust may carry forward losses, in certain circumstances;
- Capital gains tax discount – a discretionary trust is entitled to a 50% discount on any capital gains made on disposal of any assets held by the discretionary trust for greater than 12 months. This discount is also available to individuals, but not companies.
2. Unit Trust – fixed and non-fixed
In a company you get shares. In a Unit Trust you get Units. The number of Units you hold determines your share of the income and voting power.
A Unit Trust is cheaper and more flexible than a company. A company costs substantial money to set up and then has ongoing government charges to keep a company going each year. The Unit Trust doesn’t suffer this government intervention.
Previously unit trusts were primarily used to gather together investors to pool their (usually) small sums with a (usually corporate) trustee for the purposes of investment. In recent years the importance of unit trusts has grown to such an extent that they have in many respects supplanted companies as the most common vehicle through which business is conducted in the non-public company area.”
There are a number of differences between a Fixed Unit Trust and a Non Fixed Unit Trust.
- A fixed unit trust has only one class of unit holders, all with the same rights to capital and income distributions in proportion to their unit holdings.
- A fixed unit trust provides unit holders with the ability to claim a tax deduction on borrowing costs associated with their unit holding.
- A fixed unit trust can receive the threshold benefit relating to NSW land tax provisions (where this requirement has been outlined in the order form).
- A non-fixed unit trust has multiple classes of unit holders and enables the issuing of both income and capital units and has income streaming flexibility.
Please e-mail us at email@example.com to find out more.
The primary purpose of a private foundation is to fund your personal requirements and to help fund other projects that benefit the “greater good”.
Private Foundations can be used to operate your business in the private and this entity has no tax obligations. When set up correctly, they are a legally recognised entity by the ATO and have no reporting requirements.
A foundation can have its own bank account and all income generated in the foundation is non-taxable.
A Private Foundation is a legal and lawful entity set up by an individual, a family or a group of individuals. They are “not-for-profit (nfp)” “tax-exempt,” “non-government-organisations (ngo’s)” and therefore must be managed slightly differently and much more simply than incorporated company type government organisations (go’s).
The underlying principles of foundations have been written about for at least 2000 years, but it is difficult to find much written information on them today as most people using them operate in “the private” and would not be dealing with the usual “business” authorities. The “system” does not educate or promote this knowledge as they do not want the general public knowing this information, yet they are used every day predominately only by the very wealthy.
Please e-mail us at firstname.lastname@example.org for a copy of our Foundation FAQ sheet.
Self Managed Superannuation Fund
Like other super funds, SMSFs are a way of saving for your retirement. Generally, the main difference between a SMSF and other super funds is that members of a SMSF are the trustees. This means the members of the SMSF run it for their own benefit.
Running a self-managed super fund (SMSF) gives you control over where your super money is invested, and access to a greater choice of investments compared to managed super funds, such as retail or industry funds, taking back control over your hard earned super. SMSFs can be a great way to provide for your retirement, but it is important you are aware of your responsibilities and obligations as a trustee.
As a SMSF trustee, you can invest in direct property, artwork, bullion and virtually any valuable asset. You can even purchase business property, such as an office, and use the property in your business.
If you are considering a SMSF for your super savings, the publication Thinking about self-managed super on the ATO website (NAT 72579) – https://www.ato.gov.au/print-publications/thinking-about-self-managed-super/ – provides you with some practical information.
The SMSF can have a corporate trustee or two individual trustees. Your SMSF must have a trust deed which forms part of the governing rules for operating the fund. You will need to prepare an investment strategy and ensure that it is reviewed regularly. There are rules and regulations that you must follow to ensure the fund’s assets are protected to provide benefits in retirement.
You may also want to read Self Managed Super Funds - https://www.ato.gov.au/super/self-managed-super-funds/ – and Laws, Rules and consequences of setting up a self managed super fund - https://www.ato.gov.au/Super/Self-managed-super-funds/Setting-up-an-SMSF/Laws,-rules-and-consequences/ – for further details on how to run a SMSF and details of what some of the legal requirements are.
The above is, of course, far from an exhaustive list of the benefits and drawbacks of each of these structures and we recommend that you do your own, independent research before contacting us about setting up any of these entities for you.