There are several structures to choose from when it comes to running a business but there is no “one size fits all” approach and needs to be based on your specific circumstances..
One option is what are commonly known as “family trusts”.
An advantage of a family trust, is that the trustee has discretion each year with regard to who gets the income and gains from the trust. From a tax perspective, this could split the tax burden very efficiently across the family.
Quick example:
Harry’s hardware operates through a family trust and is after having a bumper 2021 year, showing a taxable profit of $335,000.
Harry’s wife Sally is taking a couple of years out of the workforce. They have 2 kids aged, 15 and 19.
The eldest, Larry, is a student but also earns $5,000 a year working in the local café. Harry is the trustee and has distributed the income as follows:
Harry $160,000
Sally $160,000
Larry $15,000
Assuming Harry and Sally have no other income, the family tax bill for 2021, would be around $95,000.
𝐇𝐞𝐫𝐞’𝐬 𝐭𝐡𝐞 𝐤𝐢𝐜𝐤𝐞𝐫 – If Harry’s business was trading under a sole-trader structure instead of a trust, he alone would have been assessed on the $335,000. This would have resulted in a 2021 tax bill of around $131,000!
So, the result is a potential 𝐓𝐀𝐗 𝐒𝐀𝐕𝐈𝐍𝐆 of over $36,000. And that is just one year’s savings!
𝐓𝐈𝐏 𝐎𝐅 𝐓𝐇𝐄 𝐃𝐀𝐘: Review your structure with your business accountant and lawyer. It could make the world of difference to the family tax bill.
The right structure based on your circumstances should also be effective for asset protection as well as offering flexibility for estate planning purposes.
Like any tax advice make sure you get help for your specific situation.
𝐈𝐟 𝐲𝐨𝐮 𝐚𝐫𝐞 𝐚 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐨𝐰𝐧𝐞𝐫 𝐚𝐧𝐝 𝐲𝐨𝐮 𝐚𝐫𝐞 𝐨𝐯𝐞𝐫𝐰𝐡𝐞𝐥𝐦𝐞𝐝, 𝐈’𝐯𝐞 𝐠𝐨𝐭 𝐲𝐨𝐮𝐫 𝐛𝐚𝐜𝐤.
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