Tag: Accounting in Geelong

Discretionary Trusts + Keeping It In The Family

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A family trust is a form of a Discretionary Trust and one of the most important investment vehicles that individuals can look at starting.  They are very useful in particular for building wealth for the benefit of future generations, flexibility in daily operations, family investments, holding and protecting your family’s properties and other assets.  These assets could include investment properties, share portfolios, personal use assets (holiday homes, boats, land, antiques etc.).

Many of our clients also prefer to keep properties used in their business under a trust structure while carrying on their operations from other business entities under a rental agreement to protect their assets from creditors and other third party legal action.

The purpose of a trust is to hold these assets and cash flow for the benefit of the members of the “family group”.  Their operation is for the most part subject to the terms of the trust deed which is prepared when a trust is established.  This makes the trust deed the single most important document for this structure.  It dictates various things including:

  • Who is the Trustee (who looks after the legal property of the trust for the benefit of the family members and decide on annual distributions – generally mum and/or dad)
  • Who is the Appointor (Person in charge of selecting the trustee)
  • Who will be the beneficiaries (those entitled to the trust’s income and/or those who have right to trust’s assets)
  • Definition of trust income including how, to whom and what type of income will be distributed.
  • What happens when a trust vests or ends.

 

Due to the fact that the trust deed of the trust defines who the potential recipients of trust income will be on formation (usually family members), trust is a structure very much favored by family businesses (I.e. a Family Trust) who can provide capital if expansion is required in the future, investments need to be purchased or excess cash of family members needs to be loaned to the trust.  This is because, besides commercial loans, it is not possible to pursue external investor capital as a family trust.

If succession planning and keeping the business with in the family is the main goal, then this is the ideal business structure.  Discretionary trusts allow the business to be passed down to the next generation of family members.  In this case, the trust deed must allow for the change of Appointor or Trustee.  As there is no change in beneficial ownership of the trust and given all family members are beneficiaries of the trust, the changeover in the control of business within the family is not subject to any CGT implications.

This trust structure offers various benefits such as:

  • Being an ideal tool for succession planning and transferring within the family without immediate tax implications.  For example, when you want to hand down the family business to your next generation while avoiding any CGT implications.  This is true, as long as they are deemed to be beneficiaries as per the trust deed which also needs to be carefully drafted.
  • Strong asset protection is provided from creditors (for instance, in the event a family member experiences bankruptcy or a related entity is going through insolvency).  This requires that the trustee is a company and trust deed limits the trustee’s liability upon being sued to the share capital invested in the trustee company.  Please note that exceptions do apply when it comes to family law.
  • High degree of flexibility in distribution of income to various beneficiaries in the most tax effective way including family and friends ensuring all the family members tax free thresholds are fully utilized.

Distributions can also be varied every year to reflect changing income of family members.

  • Access to various small business Capital Gains Tax (CGT) concessions on sale, restructure of and retirement from business.  The individual also receives a 50% CGT discount when distribution is received from the trust.
  • Overall flexibility in operation of trust as it is mainly governed by the trust deed.

One of the main drawbacks of a trust structure would be that losses cannot be distributed and there are substantial hurdles to recoup such losses.  However, trust losses can be carried forward to future years and offset against future tax income.

Due to the trust offering such significant benefits and potential tax savings, the ATO have been looking more closely into them recently.  Recent changes included reduction in distributions to minor members of the family (usually under 18 years old).

All in all, it can be quite complex and challenging to identify your business needs and selecting the appropriate business structure or combination of entities.  Furthermore there are various commercial and taxation implications when it comes to family trusts.

Keeping your business circumstances in mind, and to ensure there is a seamless transfer of wealth between generations, it is recommended to get professional advice before making any such decision so you can customise your entity structure to your business needs.

 

Humam Siddiqui – Accountant

BComm

New Year Resolutions that Will Make A Real Difference To You + Loved Ones

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Now that the dust has settled on what was hopefully a fun-and-family-filled Christmas and New Year period, it is a great time to reflect on those hastily-made New Year’s resolutions, and consider the difference it will make if you actually see them through.

Perhaps you resolved that in 2019 you will exercise more, quit smoking, drink less, or spend less time looking at your phone.

For others, you may have decided that 2019 is the year you get your personal, financial or business affairs in order. That may include getting those Wills and Powers of Attorney prepared (which you’ve been meaning to do for years), getting that accounting or financial advice you know will make a difference, or kick-starting that business which you’ve been daydreaming about.

Now these are New Year’s resolutions that will make a real difference to you, your loved-ones, your financial health and your current/future employees.

The most important part is getting the process started. The second-most important part is making sure that each of the elements of your plan complement, and do not contradict each other. For example, the superannuation or asset planning which you undertake with an accountant or financial advisor should be reflected in your will, your business plan should be supported by adequate funding arrangements and succession agreements, and your business tax planning and compliance must be complemented by appropriate employment agreements for your staff.

Ideally, this means you should be seeing a lawyer, accountant and financial adviser contemporaneously, and have them talk to each other to ensure each element is consistent. But who has the time and energy for that?

This is where Canny Group can help you stick to your New Year’s resolutions. We have a team of experienced accountants, lawyers and financial advisers under one roof who are ready to listen, identify your needs or the needs of your business, and work cohesively to get your affairs in order, or your dream off the ground, for the best possible start to 2019.

 

Stefan Manche

Senior Associate Solicitor – LLB, BComm (Finance) 

We Bring Home an International Award

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The PANALITIX conference is a premier annual even where accountants from across the globe converge to learn on accounting best practice from industry influencers, thought leaders, technology and solution providers as well as international outstanding accounting firms.

Directors, Amanda Wilkens and Krystine Canny-Smith and Manager Helen Yau travelled across the globe to San Diego in November to take part in the conference.  Not only bringing back extra suitcases and excess baggage, they also managed to bring home the Best in Team Development Annual Award for 2018 from 12 awards.

The ‘Best in Team Development’ category aims to reward those who strive to create an amiable work environment for their team, while consequently providing continuous team development and engagement, resulting in business growth.

http://atthepac.com/thepac-awards/

How To Set New Year Resolutions and Stick To Them

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So 1st January you have your list of resolutions and you are completely committed… 2nd January you are distracted with ‘life’ and by 7th January they are in the ‘too hard, stinks of effort’ basket if you haven’t forgotten about them already.

Well this year is going to be different and this is how;

1. Think of the top 3 things you want to change in your life – business or personal.  Any more than this and it gets too complicated and overwhelming and this is where the failure rate creeps in.

2. Think about the length of time you need to achieve each goal and diarise the date that they each need to be completed by. Be realistic here but it must be within the year.

3. Contact the people or business that will help you achieve your 3 goals.  If it is getting your Will done, call your lawyer and make the appointment.  If it is getting fit, call a Personal trainer.  If it is starting a new business or expanding, call your Accountant.  If it is making more time to see your parents or friends get on the phone now and just do it!

4. Decide on the reward you will give yourself when these are completed.

It is likely that you can’t do all this alone so don’t be afraid to delegate to the experts who can help you.

Business goals are no different to personal goals in terms of the way you should ‘attack’ them.  You must be methodical and committed otherwise you are wasting your time, money and that of those that are prepared to help you.

We have many clients who say at the beginning of the year that they want to ‘increase their income’ or ‘decrease their costs’.  These are sweeping statements and we can help you do this, but first we will help you determine what the figure is and what and how they can be achieved.  It takes time and thought to plan this.

 

In 2019 we will be holding our popular ‘One Day Plan sessions’ each month commencing in March in our new premises at the Federal Mill.

These whole day sessions are designed to establish what your goals are and we work with you to determine the path you will take to achieve them.  So it doesn’t just have to be at New Year that you can make resolutions!

The dates for these sessions will be released in our February Newsletter and are open to existing clients or new.

 

Amanda Wilkens – Director

B.Comm CPA

Making Sure Your Small Business Doesn’t Break the Bank these Holidays

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If you are like most small businesses, you may find Christmas and January the hardest time of year for cash flow!

Tradies find there is no income as building ceases and materials that haven’t already been received aren’t available until February.  This effects not only those directly in the building trade, but also concreters, plasterers, glaziers and everyone who supports the building trade.

For small businesses like ours, who support other small businesses, we find our clients close over the New Year and January.  It’s not just accountants though who are effected by this, it’s commercial cleaners, security firms, lawyers and all whose services support small businesses.

And if you support the education sector, then you can look forward to closing shop for around six weeks!  Small businesses that run schools (sport, art, dancing and music schools come to mind) or support education (cleaning, security or education providers) can be confident there won’t be much hitting their bank account in January!

Yes, things get hard when cash flow is tight, but there are a few simple things you can do to help manage it.  Remember that forewarned is forearmed!

  1. Talk to your clients/customers and let them know you need them to pay before Christmas. If you are able to reduce your outstanding debtors and get this money in the bank, it will help cover the Christmas wages and also January when receipts are low.  Ideally, all your customers should finalise all accounts that are over 30 days before Christmas.  This will make an enormous difference to your cash flow.
  2. If possible, invoice clients in advance.  A very clever client of ours (who shall remain nameless and who knows exactly what work will be provided in January), offered her customers the opportunity to pay in advance.  If you operate a larger business, it may be convenient to pay January in advance to your suppliers.  Then you won’t have to worry about bills over the holiday period.  If some of your customers fall in this category, consider invoicing in advance.
  3. Speak to your bank about an overdraft.  Although we generally like to avoid overdrafts and minimise borrowing, there are times each year when you may need extra help to meet the bills.  If you can get approval for an overdraft this is a good safety net.
  4. Last, but not least, put off paying any creditors you can.  Naturally it feels bad putting off paying our suppliers.  However, if we contact them in advance and let them know how much we will be paying and when they are usually happy to accommodate.  We all know from our businesses, that if we know when someone is paying and how much they are paying, we feel more comfortable than if we don’t hear from them or they avoid our calls.

Don’t forget that the superannuation for your employees is due before 28th January 2019, so make sure you have enough in your account to cover that.  Your BAS will generally be due before 25th February 2019 (unless you are a monthly BAS lodger), so thankfully cash flow should return to normal by then.

In the meantime, if you need any help with cash flow or want any information to help you budget over Christmas and January, please don’t hesitate to contact our Accounting team.

 

Krys Canny-Smith

Director – CPA, BComm