This time of year is normally a good time to start planning to take advantage of deductions and strategies with a view to keeping tax to a minimum come financial year end. Lets explore tax structuring.
It’s also not a bad time to give some consideration to accumulating wealth for the longer term and we read a lot in the media about superannuation, particularly Self Managed Super Funds (SMSF’s). The rise of the SMSF as the investment structure of choice has resulted in another very useful investment structure, being the family trust often being ignored.
The family trust has use both for investments and for running a family business. The trust does not pay tax in its own capacity but rather distributes its income according to the discretion of the Trustee. This means that the distribution can be made to family members with the lowest taxable income, who will in turn pay the least tax, meaning the total income of the family is minimised.
Some of the other benefits of this structure include asset protection, the ability for intergenerational wealth transfer, no age limit to access funds (once over 18), the ability to hold personal use assets which can’t be held in a SMSF eg holiday unit, and no necessity to have a great balance to make it feasible.
With a SMSF one needs a reasonable amount to be invested to make the structure viable in terms of the cost of running it. The responsibilities placed on trustees by the SIS Act and other legislation is onerous. There are certain investments that need to be avoided as well as restrictions on who can transact with it.
The big attraction of the SMSF is the tax benefits of superannuation as well as the flexibility in managing investment savings. The SMSF can also complement the family business by owning the business premises. There can also be the opportunity for business owners who sell their business to sell the premises to a SMSF and receive capital gains concessions.
So although superannuation is an excellent tax advantaged vehicle for retirement savings, the benefits of family trusts should not be underestimated. The operation of the two structures in tandem can be part of a great tax saving and wealth creation strategy.
For more on this give Alec at Proactive Accounting a call on 55394143