tax question/strategy

[TheBloods]

Originally posted by Robin Hood
The trust would distribute the profit to beneficaries so its not like no tax would be paid. The question is why would u want to distribute the 200k?

The trust would need to distribute the $200K or be hit with a tax bill. The profit transfer (which is simply what it is) from the private company to the family trust would normally be done because the trust has a number of family members as beneficiaries. Each will receive income and pay tax, however a number of them (wife, kids, grandparents, siblings, etc) may not pay tax already, hence they pay a lower marginal tax rate, hence the $200K can be taxed at a lower rate than if it remained in the company and was distributed from there.

 

[Robin Hood]

Originally posted by NMWBloods
The trust would need to distribute the $200K or be hit with a tax bill. The profit transfer (which is simply what it is) from the private company to the family trust would normally be done because the trust has a number of family members as beneficiaries. Each will receive income and pay tax, however a number of them (wife, kids, grandparents, siblings, etc) may not pay tax already, hence they pay a lower marginal tax rate, hence the $200K can be taxed at a lower rate than if it remained in the company and was distributed from there.

yeh i understand that, but distributing 200k to a family trust is proabably a bit much considering children u18 dont recieve much and considering u generally dont have alot of people to distribute the money too. I understand the principle, I just think 200k is excessive.

 

[TheBloods]

Originally posted by Robin Hood
yeh i understand that, but distributing 200k to a family trust is proabably a bit much considering children u18 dont recieve much and considering u generally dont have alot of people to distribute the money too. I understand the principle, I just think 200k is excessive.

Yes, it does seem high, but it depends on the circumstances of the case.

 

[Deej]

Guys don't worry about the 200k i was just pulling a figure. In reality i think you'd pay maybe 10k a month and then in the final 3 months bump it up to 15k or something like that.

What about dating invoices relating to expenses incurred in june for the following financial year july 1st or 2nd? I understand the revenue/cost incurred theory, but i'd imagine it'd be nearly impossible to enforce. I'm in transport, all i'd have to say is that it was quiet but i had my drivers on retainers so i was basically paying them to do nothing, sit around. How could the tax office get me on that?

 

[TheBloods]

Well, it's illegal and if you get audited it could get tricky, particularly if it looks obvious that every June and July some shifting of revenue is done. Same with the adjustment of rent up just before the end of the tax year. The ATO are quite powerful at striking down things they simply as tax avoidance/evasion.

If you don't get audited you'll be fine.

 

[Deej]

Originally posted by NMWBloods
Well, it's illegal and if you get audited it could get tricky, particularly if it looks obvious that every June and July some shifting of revenue is done. Same with the adjustment of rent up just before the end of the tax year. The ATO are quite powerful at striking down things they simply as tax avoidance/evasion.

If you don't get audited you'll be fine.

What happens when you get audited? We don't currently run any software that can correlate and match up revenues to costs incurred, just invoice and do payroll through myob. It's a pretty vague program for our business really, all transactions have to be entered manually and could relate to anything quite frankly. Only way you could match it up would be to match up every drivers runsheet with every invoiced job, and if you did that you'd be at it for a month or more. For what return, 10 grand? Would they do that?

 

[TheBloods]

You're meant to retain reasonable books, etc, but that obviously can depend on the organisation.

You can get away with a bit, but you don't want to make the numbers look too obvious. I would guess the auditors would compare revenue and expenses by month, and an obvious spike or drop around tax year end may raise some earning signals for them.

It would be a good idea to speak to your accountant about something like this.

 

[Robin Hood]

Originally posted by Deej
What happens when you get audited? We don't currently run any software that can correlate and match up revenues to costs incurred, just invoice and do payroll through myob. It's a pretty vague program for our business really, all transactions have to be entered manually and could relate to anything quite frankly. Only way you could match it up would be to match up every drivers runsheet with every invoiced job, and if you did that you'd be at it for a month or more. For what return, 10 grand? Would they do that?

1. You need proof of your expenses.

2. You need proof of your revenue.

3. You need to account for opening and closing stock.

Then your accountant does the rest.

If the trust owns the property of course you can pay rent to it...I just dont think you could pay $200k a year on a rental property worth $5k a year etc. It has to be reasonable.

Your not avoiding tax by paying rent to the Family Trust because the beneficaries are still liable to tax. They must just pay less tax but Tax rates for companies are 30% so retention in the company of the money may be best if the beneficiares pay a higher tax rate.

 

[Frodo]

Originally posted by Deej
Guys don't worry about the 200k i was just pulling a figure. In reality i think you'd pay maybe 10k a month and then in the final 3 months bump it up to 15k or something like that.

What about dating invoices relating to expenses incurred in june for the following financial year july 1st or 2nd? I understand the revenue/cost incurred theory, but i'd imagine it'd be nearly impossible to enforce. I'm in transport, all i'd have to say is that it was quiet but i had my drivers on retainers so i was basically paying them to do nothing, sit around. How could the tax office get me on that?

Future liabilities are expensed in the year they are invoiced.

Eaxmple. I have businees trips in September and exhibitions in October and November. All are invoiced in June. They are all legally treated as 2003/2004 expenses

 

[Frodo]

Originally posted by Deej
What happens when you get audited? We don't currently run any software that can correlate and match up revenues to costs incurred, just invoice and do payroll through myob. It's a pretty vague program for our business really, all transactions have to be entered manually and could relate to anything quite frankly. Only way you could match it up would be to match up every drivers runsheet with every invoiced job, and if you did that you'd be at it for a month or more. For what return, 10 grand? Would they do that?

If you don't have software you need accurate manual records or you will be assessed by the ATO , severely, as they will assume you are evading.

 

[Frodo]

ADVICE

Play by the rules. Beaurocracy wins 99.9% of the time.

But beaurocrats are dimwits that couldn't get good jobs so there are loopholes. Find them and use them. If your budget affords it pay for good financial advisors.

 

[Former]

Originally posted by Deej
The accountant has tried to explain it all before but it is all so friggin hard to understand when people start talking about trusts and entities and corpus something or rather and beneficiaries and shareholders and the accountant i had spoke in such technical terms i just had smoke coming out my ears trying to understand.

I get my accountant to draw pictures if I don't understand what he's talking about. I don't leave the room until the whole thing is in language I can understand.

 

[Former]

Originally posted by Deej
What happens when you get audited? We don't currently run any software that can correlate and match up revenues to costs incurred, just invoice and do payroll through myob. It's a pretty vague program for our business really, all transactions have to be entered manually and could relate to anything quite frankly. Only way you could match it up would be to match up every drivers runsheet with every invoiced job, and if you did that you'd be at it for a month or more. For what return, 10 grand? Would they do that?

Was on a jury once for a couple who had a shop and understated their income. Forensic accountants reconstruct the business. They find every scrap of paper they can get their hands on, then get out the calculators and don't stop until they have added up every last item and laid it out in a nice spreadsheet for the courts.

Where you see a pile of runsheets, dockets, scraps of paper and undecipherable notations, they see evidence and they aren't afraid to testify that a squiggle on a scrap of paper is a receipt or invoice proving undeclared income.

But I've heard they usually don't get that deep for anything under about $100k unless they are cracking down on a particular industry.

 

[chelseafc8]

I have a trust that rents a house, and my accountant told me I have to be sure I'm charging 'fair market value'