Asset structure for a small business owner

By 27 August 2013Business

The basic principle is that entities and/or individuals that hold valuable assets ought not to be exposed to the risks associated with trading/business activities.

In summary, the following is the suggested way that most family groups who are involved in business, should hold their assets in order to afford them asset protection and tax minimisation:

Principal Place of Residence

Should be owned by the non “at risk” spouse or as tenants in common between the two spouses with the “at risk” spouse holding a minimal interest (ie a 1/100th share). This allows the owner(s) to take advantage of the fact that there is no tax payable on a capital gain made on the sale of a principal place of residence if it is owned by an individual.

Trading Entity

This is the entity that will carry on business activities and therefore could be potentially exposed to litigation or experiences financial difficulties. The intention is that this entity owns minimal assets and anyone who is in control of the entity (eg directors of any companies) also owns minimal assets. It is recommended that you only have sole directors of these companies.

From a taxation point of view, in order to have total flexibility, it is preferable for the trading entity to be a family trust or a partnership of family trusts as a discretionary trust is the preferred trading entity taking into account income tax and capital gains tax considerations. Also, it is preferable that the trustee of the trading trust be a company.

Where more than one business is conducted, multiple entities ought to be established so that there is a separate trading entity to operate each business.

Asset Holding Entity

Any business assets or investment assets that are accumulated by the family should be held in a separate entity, usually a separate family trust to again give income tax and capital gains tax flexibility. The trustee does not necessarily need to be a company in this situation but does offer more protection. Consideration should be given to establishing separate family trusts for business assets as opposed to investment assets.

Superannuation

If family members are endeavouring to accumulate assets for their retirement then it is preferable to hold such assets in a superannuation fund. This can be part of an overall wealth creation strategy.

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