If you have a niggling feeling that your business set up may not be in your best financial interests, it’s probably time to review your structure. If your circumstances have changed or you’ve simply outgrown your existing structure, it’s likely you’re missing out on a raft of financial benefits among them tax savings and the opportunity to withdraw wealth from your business that you could be using for your personal enjoyment.
The best structure for your business goes beyond the basic legal entity. There can be enormous benefits as a result of financial restructuring including better management of business risk, protecting IP and personal assets, reducing your tax liability, capitalising on business growth or planning your succession from the business or sale.
Horses for courses
All businesses require a flexible structure, but what’s most important is that your business structure matches your business goals and ownership needs. Not all businesses will require a change to their legal business structure in their quest towards improving their business and personal outcomes.
Working with you, we can undertake scenario planning and a financial SWOT analysis to identify if your business will benefit through financial restructuring or whether addressing your business entity will provide the outcomes you need in terms of business flexibility, succession plans, asset protection and tax efficiencies.
Financial restructuring may include improving liquidity by revaluing or divesting assets or addressing capital needs such as share capital or new loan structures to improve financial outcomes.
Restructuring your trading entity is about identifying the most appropriate structure for your needs, for example Company Structures, Family Trusts, Discretionary Trusts or Unit Trusts and the use of Self Managed Super Funds (SMSF) to help achieve advantages including:
Tax efficiencies/Personal income management
If you are looking for flexible arrangements for a family-owned business, a Family Trust or Discretionary Trust can offer the ability to income split and potentially reduce tax liabilities for involved parties. Trust structures also allow distributions to be varied each year and assets can be transferred more easily than in other structures. In contrast, it can be more difficult financially to reinvest profits back into the business and income tax for trusts can be complicated.
A Company structure means that Company Tax rates apply, which are usually less than Marginal Tax Rates. Tax concessions also apply under a Company structure including Income Tax concessions, GST and Excise concessions, PAYG Instalment concessions and Fringe Benefit Tax concessions. There are limitations to CGT concessions for Companies.
Under a Company Structure, shareholders are not liable for company debts and their personal assets are protected (excluding their company shares). In some circumstances, a Company Director may be held legally responsible for the debts/liability of the company. Dependent on business goals, this type of structure may be more appropriate for non-family-owned businesses with non-related partners.
Discretionary Trusts or Unit Trusts allow separation of business liability from the Trustee’s personal affairs, which means asset protection for personal assets. While personal assets are protected, the Trustees are liable for the debts the Trust incurs.
Succession and Growth Plans
A Discretionary Trust allows assets and control of the business to be transferred relatively easily, which may offer family-owned businesses a good option for succession. A Trust structure enables the Trustee to choose how funds/assets are distributed to beneficiaries. Only assets are able to be distributed, it’s not possible to distribute losses. Trustees must adhere to strict conditions and legal obligations outlined in the Trust Deed and often there are significant costs associated with establishing a Trust.
A Company Structure enables shares to be transferred, which may make the sale of the business and transfer of ownership easier than with other structures. A Company Structure can use losses to offset against future profits, which may be more appropriate for higher risk enterprises. There can be other complexities associated with a Company structure, such as borrowing money/entering leases or contracts without a personal guarantee from a Company Director, and they can be expensive to set up and run.
Supersize your benefits
A SMSF may provide additional benefits including business succession options and the ability to purchase a business premises in a tax effective environment. A SMSF may represent an opportunity to build a portfolio of property assets, increase personal retirement savings from rental incomes and enjoy lower tax rates. Additionally, assets held within a SMSF structure are protected from the risks usually associated with your business operations.
Get a second opinion
If you would like a second opinion about your business structure, we can guide you through a cost-benefit analysis process to assess your needs and understand the costs, tax consequences and administration requirements of different options for structuring your business. We will also provide a tailored structure report highlighting the attributes of the structure we recommend to make the most of your business and personal needs.
What have you got to lose?
We are committed to helping our clients optimise business outcomes throughout their business life by identifying the most appropriate structures for your personal and business interests.
If you would like to know more about the potential benefits of restructuring your business or would like a second opinion, I encourage you to give us a call on 03 9708 8801 or email firstname.lastname@example.org
At Robinson Voss Partners, we have over 40 years combined experience and expertise in accounting, business advice and specialised tax issues.
General Advice Disclaimer: The information contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Robinson Voss Partners (RV Partners) strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.