AEMEE
C
Corporate
S
Structure Advice
___________________________________________________________________________________________________________
Level 8 Waterfront Place, 1 Eagle Street
Brisbane Qld 4000 Australia
F +61 7 3024 0300
T +61 7 3024 0000
PO Box 7822, Waterfront Place Qld 4001 Australia
E contactus@hopgoodganim.com.au
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www.hopgoodganim.com.au
Introduction – What will we cover
1. Structuring Options
1.1
1
1
1.2
1.3
1.4
Company
Discretionary trust
Charitable Trust
Joint Venture
2. Key Issues – Company and Trust
2.1
2
1
2.2
2.3
2.4
Assett Protection
A
P t ti
Tax
Income Distribution
External Investment
3. Individuals and Community Interests
3.1 Funding (Native Title)
3.2 Tax on Royalty Payments
4 Conclusion
4.
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1. Structuring
g Options
p
1.1
Company
Most commonlyy used structure . Most versatile
Corporations Act 2001 (Corporations Act)
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Registration - takes a few hours (shelf company). ACN (Australian Company Number). A unique
p
can have the same ACN
identifier and no two companies
Directors - at least 1 director. That director must ordinarily reside in Australia.
Personal Liability - Directors and secretaries must follow the requirements set out in the
Corporations Act 2001 otherwise personally liable.
‘Housekeeping’ matters’ - company must attend to some basic matters: (i) a registered office (ii)
registers of members (shareholders) (iii) register of option holders (iv) minutes of general meetings
(v) minutes of meetings of directors (v) register of charges (vi) financial records and annual accounts.
Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act)
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Can apply to be registered under CATSI. Broadly similar to Corporations law.
the “Registrar of Indigenous Corporations”
Regulates Aboriginal and Torres Strait Islander groups to form corporations
Objective •
designed to meet the specific needs of Indigenous people;
•
promote good governance and management;
•
allow for modernised corporate
p
g
governance p
practices and accountability
y standards
similar to the Corporations law but has streamlined the reporting requirements (importantly liability is
same)
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1. Structuring
g Options
p
2.2
Discretionary Trust
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Benefits and limitations - it is very important that you understand the type of trust you have, what are
its benefits and limitations.
Trust deed - trust is established based on a trust deed. Sets out the terms on which the trustee must
manage the trust property.
Four key things that you need to understand about a Trust:
1)
First- Trustee.
The trustee is a person or company that has control of, and is responsible for, the trust and its assets.
2)
Second – Activities
This is one of the important differences between a charitable trust and a discretionary trust.

Flexibility - you are not restricted in the types of activities that you can carry out. If you want to run a
business, you can do that through a discretionary trust – but not a charitable trust.

With a charitable trust, any benefits must be charitable in their nature (eg, a scholarship for an
education, health and welfare).
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1. Structuring
g Options
p

3)
You can’t pay money to a member of your community unless you can be satisfied that the payment is
for charitable reasons.
Third – Beneficiaries.
Beneficiaries
Who is able to benefit from the trust. The people who are allowed to receive benefits from the trust.
4)
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Fourth – Tax

Payable - if you want to start up a business, you can do that – but the business has to pay tax on the
profit that it makes
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Fewer restrictions - there are also fewer restrictions in terms of who you can give benefits to, and
why and therefore how the tax is paid.

Not as good from a tax perspective as compared to a charitable trust
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Trust structure
Control
Responsibility
Company Pty Ltd
Money
XYZ Trust
T t
Activities
Trustee
Trust
Only
O
l permitted
itt d tto undertake
d t k
the activities which
are the purpose of the Trust
Operating
company
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1. Structuring
g Options
p
1.3
Charitable Trust

Only activities charitable in nature.
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What is charitable (eg):
•
•
•
•
advancing education;
developing community facilities and resources;
promoting your cultural values to the broader community;
protecting and preserving cultural sites.

No commercial activities. - It cannot, for example, start up and run a business.

No Tax payable
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As a director you will be responsible for making sure that these restrictions are complied with.

Penalties apply (mainly in the form of a penalty tax) – for failure to comply with these restrictions
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1. Structuring
g Options
p
1.4
Joint Venture
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Most common form of resources Joint venture is an “unincorporated joint venture”
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It does not have separate legal personality (corporation)
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Importantly it is not a partnership
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The relationship is determined contractually
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Incorporated v unincorporated joint venture – primarily a matter for tax
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An unincorporated joint venture :
A contractual relationship which involves separate ventures for each participant in a particular
undertaking and for the individual gain and NOT joint profit of each participant
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Primary benefits of an unincorporated joint venture:


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direct ownership by the participants
taxation - flexibility for each participant to treat its interest in the joint venture as a
separate stand alone business for income tax purposes.
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2. Key
y Issues – Company
p y and Trust
2.1
Asset Protection
Company
 ‘Limited
Limited liability”
liability status – to value of shares
 Use of a holding company – hold the assets that does not trade
•
•
•
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
Limited exposure to creditors and related risks
Li
License
ffrom h
holding
ldi company tto use assets
t
License to terminate on certain events (eg, insolvency of the trading company)
Directors personally liable for some company debts (eg, knowingly trading while insolvent, taxes PAYG ,
GST etc)
Personal Property and Securities Act 2010 (PPSA)

Register the trading company assets on the PPSA register
Di
Discretionary
ti
Trust
T
t
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A “trust” is not a separate legal personally and carries on business through a ‘trustee”
Trustee will assume personal liability for all commercial dealings
P
Possible
ibl to use an iindividual
di id l or a corporation
i as a trustee. If corporation
i may iimpart the
h ‘li
‘limited
i d liliability”
bili ”
benefits of a company structure.
Directors of the trustee company will be responsible (and liable) for ensuring that the trust complies with its
legal obligations.
Trust Act 1973 (Qld) – the right of the trustee to indemnify itself out of the net assets of the trust (for
liabilities)
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2. Key
y Issues – Company
p y and Trust
2.2
Tax
Company
p y


Company - 30% of profit
Shareholders - additional tax for shareholders for declared dividends
Discretionary Trust
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Income Tax Assessment Act 199 7(Cth) contains specific provisions dealing with taxation of trusts
Beneficiary - income distributed to the beneficiary by the trustee is taxable income at a marginal rate that is
applicable to that particular beneficiary.
‘undistributed income” - any undistributed income will be subject to a penalty tax at the rate of 46.5%.
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2. Key
y Issues – Company
p y and Trust
2.3
Income Distribution
Company
p y


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Reporting requirements - more onerous than a trust or other structures.
Access to profit – more cumbersome than a trust
Dividends - only distributed to shareholders
•
“Franking credit” – shareholder can get a credit for tax paid by the company (but must top up any
difference between the company rate and the shareholder’s marginal tax rate)
Discretionary
y Trust
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Broad discretion –the trustee has a broad discretion as to how the income is distributed (makes it ideal for
income distribution).
Need to carefullyy consider who are the beneficiaries. Once decided can not change,
g , eg:
g
•
family members
•
community members
Taking advantage of lower marginal tax rates (reducing tax costs).
Can vary
Ca
a y tthe
e be
beneficiary
e c a y eac
each yea
year depe
depending
d go
on ccircumstances
cu sta ces (a
(and
d marginal
a g a ta
tax rate)
ate)
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2.
2.4
Key
y Issues – Company
p y and Trust
External Investment
Company
Best structure – to facilitate external investment. Flexible.


Issue new shares (dilution) or share transfer.
Consider - entity to invest in (holding or trading company)
Discretionary Trust
Not as effective to bring in new investors


No fixed entitlement to income (eg, shares)
All distributions are discretionary (dissuade investors) ie, beneficiary defined as ‘family’ members or
‘community’ members
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3. Individual and Community
y Interests
3. Individual and Community Interests
3.1
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32
3.2
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Funding (Native Title)
Native Title compensation payments
Federal or State (Territory) funding
Grants and institutional scholarships (company start ups)
T on Royalty
Tax
R
lt payments
t
Native Title payments – not subject to income tax or capital gains tax.
This is the case even if the native title royalty are paid to a discretionary trust or a company.
Income - any income derived by the discretionary trust or company (eg, a business that generates a profit)
will be subject to income tax (new federal legislation pending to confirm this)
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4. Conclusion
Conclusion :
1.
Business Objectives - carefully consider what are your business objectives
2.
Appropriate Business Structure - Determination of the most appropriate business structure
3.
Properly set up the business – spend the time thinking it through and getting it set up properly
Benefits of getting it right :
1.
2.
3.
3
4.
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Save Costs - avoid paying excessive costs
Avoid Fines and Penalties – avoid paying fines and penalties for non compliance with these
structural obligations (eg, reporting obligations)
Reduce Taxation – avoid paying too much tax
Avoid Personal liability - as a trustee or director/secretary
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