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HIRE AND RENTAL NEWS • NOVEMBER 2016
Structures and strategies that have been
ideal in the past may not be appropriate
in the current environment. Therefore
it is important as laws change business
owners review structures to ensure
their commercial needs are still being
addressed and they remain in a position
to achieve their long term objectives.
Due to changes in the taxation of trusts,
one of the major issues facing hire and
rental business owners today is the ability
to retain earnings in their structures and
cap tax at the corporate rate of 30%*. In
a capital intensive industry such as hire
and rental, this is a significant issue as
retained earnings represent a primary
source of funding for working and growth
capital as well as for debt repayment.
In addition, the situation becomes
increasingly complex when you
consider terms such as unpaid present
entitlements, division 7A loan agreements
and sub trusts. Given the difficulties in
retaining earnings and minimising tax in
non-corporate entities, and the additional
complexity and compliance costs, it is
time to consider whether moving to a
company structure may be beneficial.
Moving to a company structure can offer
the following advantages:
• Ability to retain earnings invested
back into the business at 30%*;
• It is a known vehicle in which to do
business and is easy to understand;
• Asset protection;
• Facilitates succession planning;
Is it time to put your trust in a company?
By Richard van der Merwe and David Hinchey, Fordham Business Advisors
In life, change is the one constant. This saying also rings true in relation to the Australian
taxation system.
• Ability to pay franked dividends ;
• Potential to transfer additional funds
into superannuation outside regular
contribution caps;
• Addresses existing Division 7A issues;
• Maintains access to small business
concessions.
The Australian taxation system provides
generous provisions to allow taxpayers
to transition their business to a company
from other structures without paying
capital gains tax. Similarly, the Australian
taxation system provides a wide
variety of alternatives for structuring
investments, business and tax affected
earnings on gains. Frankly, it pays to
review your tax structure!
Taxpayers who react to changes in
income tax laws as they arise, and put
into place appropriate structures, will
ultimately be in the best position to
ensure they are paying the right amount
of tax and not a cent more!
Following are the types of businesses and
owners in the hire and rental industry
(and their circumstances) that may
benefit from a tax review or restructure:
• Businesses trading in a trust who are
making more than $1 million profit;
• Businesses trading in a trust
distributing to a corporate beneficiary;
• Business owners who are paying
greater than 30% tax rate (anywhere in
their group);
• Business owners who are approaching
the Small Business Concessions
$6 million limit regarding market value
of assets;
• Business owners who own shares in
their personal names;
• Business owners who aim to transfer
more money into superannuation in
addition to the regular caps (note the
borrowing in super opportunity);
• Business owners who want to borrow
in their self-managed super fund;
• Business owners with existing Division
7A (Debit Private Loan) issues – look
out for complying loan agreements or
sub trusts;
• Business owners who do not
understand Division 7A.
Contact 03 9611 6066.
* Companies with an aggregated annual
turnover below $2 million are taxed at 28.5%
in the 2015/16 income year. The 2016 federal
budget proposed lowering the small business
corporate tax rate for companies with an
aggregated annual turnover below $10 million
to 27.5% from the 2016/17 income year. Note
the proposed changes are not yet law until the
legislation is passed.
This article has been prepared by Fordham
Business Advisors and Perpetual Trustee
Company. This information is believed to
be accurate at the time of compilation and
contains general information only, not intended
to provide advice or take into account personal
objectives, financial situations or needs. We
recommend you seek professional advice.
To the extent permitted by law, no liability is
accepted for any loss or damage as a result of
any reliance on this information.
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Email:
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Web:
www.pinpointcomms.com.au
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