If you are considering making changes to how your business is structured, then this might be the push you need. Recently we sat down with Senior Manager, Petrina Stamos to talk about the benefits of having a family trust owning shares in your trading company.
Petrina has over 20 year of experience in public practice, advising small to medium businesses. “So many clients I see have director owned shares and often this isn’t the structure that we would recommend”.
So what are the benefits of shareholding through a family trust?
- Profits are initially taxed at 27.5%, and then held in the company to fund growth until they are taken out through dividends in a more tax effective way through the trust.
- You can access the 50% Capital Gains Tax (CGT) discount if the shares are sold after 12 months.
- Being the director of the operating companies, is open to a variety of risks. By also owning the shares in the companies, it puts any value accumulated in the company also at risk. Having the Family Trust as the shareholder provides a layer of asset protection.
- It provides greater opportunity for tax planning through the distribution of profits to its discretionary beneficiaries.
- It is always best to have the ideal structure established when commencing your business, but sometimes in an effort to reduce costs, simplify the business set-up and even because of unexpected business growth this isn’t always done.
- Changing your business structure will incur costs but these are usually minimised by taking action sooner rather than later and will add a layer of security to your finances down the track.
- The ability to update structures has been made easier and less costly recently with the Small Business CGT Concessions and the Small Business Reconstruction Rollovers being introduced. McConachie Stedman has had good success in using these concessions to help business owners change structures with little or no tax impact.
Everyone in business faces risks; in the case of director owned shares these include, liability, taxation and family. Personal risks include, insolvent trading or liability for unpaid PAYG Withholding or employee superannuation. “While it is impossible to eliminate all risks, it is important as accountants that we put in place roadblocks to best protect our clients’ assets.”
For more information on reviewing the structure of your business, contact your advisor or accountant.