Aussie Firebug

Financial Independence Retire Early

Nothing written below is financial advice. The questions and answers below are for general information only and should not be taken as constituting professional advice. You should always do your own research when making any financial decisions.

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Question (03:39)


Hi,
My partner and I have two joint ventures with another married couple.

BUSINESS ONE:

This is our primary business. Our family trust owns 50% of the company’s shares and the other couple’s trust owns the other half.

The business has been growing well ever since we purchased it in 2019. To purchase this business, the company itself took out a substantial loan – using its own assets as security. This is a loan that the business owes.

Separate to this, each couple contributed a small ‘buy-in’ sum of money through our respective family trusts. My husband and I took out a personal loan (within our trust) for our ‘buy-in’ contribution. The other couple had the cash to contribute through their family trust.

These ‘buy-in’ amounts are recorded as a ‘loan’ to the company. Because they exist, we have not been taking a dividend when there is surplus cash flow. Instead, when the business can afford to pay an amount to each family, it has been treated as a ‘loan-repayment’ for the ‘buy-in’ money that was contributed at the start.

This business has two directors – one person from each family unit. These directors take a regular PAYG wage.

BUSINESS TWO:

This company was created as the entity to purchase a block of commercial property. Our lawyers had much deliberation whether to purchase the property via a tax partnership between the trusts or purchase it in a company. A company was chosen in the end for the added asset protection.

We have purchased this land with the same couple with whom we own our primary business. This block of land will become the business premises for our primary business.

This company exists outside of our family trusts for asset protection. As with the first venture, the company is owned 50/50 between the families and has the same two Directors.

 

INTENTIONS FOR THESE JOINT VENTURES: Who knows what the future will bring. At the moment, collectively, we would love to continue to build these businesses up and eventually, we would like to sell them together for a comfortable profit.

 

OTHER CONSIDERATIONS

Our PPOR has been moved into the name of the spouse that does not act as a Director – for asset protection.

My partner and I have our own share trading portfolio inside of our family trust.

Personally, I work very little in our existing businesses at present. I am primarily a stay-at-home parent. When my kids are bigger, I would like to start my own side business doing web development from home. I would start this venture as a sole trader – unless advised otherwise.

 

Questions for Terry:

1) Is it a good idea to have our share-trading portfolio inside the same family trust as our main business? I’m not sure if this is a mistake or whether it’s okay because the trust only owns half shares in the main business.

2) Was a separate company the best way to purchase the block of commercial land?

3) Currently, I invest small amounts of money regularly into the stock market (ETFs). This money is taken from our everyday personal account and deposited directly into our brokerage account (SelfWealth). Any money that the share portfolio makes is deposited directly into the brokerage trading account and re-invested with the next purchase parcel. Money that goes to the brokerage account – and money that is received as distributions – never flows through the trust account at all. Is this a problem when the share trading account is held in the name of the family trust?

4) Within the main business, each director takes a PAYG wage. Is this the optimal way for them to be receiving a salary? Or should they be taking remuneration as a dividend? What’s the tipping point between taking a wage (which is a business expense for tax) becoming outweighed by the benefit of dividends (which have franking credits)?

5) My partner and I took out a small loan within our family trust as our ‘buy-in amount’ for our primary business. When this business has surplus cash flow, we take money out as a ‘repayment’. However, we redirect this money into our home loan offset rather than paying down the tax-deductible bank-loan debt in our family trust. Is this allowed, or are we doing something wrong here?

6) Down the track, when I start my own web-dev business as a side hustle from home, is there anything to watch out for and is sole-trader the best way to begin?

I hope this all makes sense! …I know we have a lot going on!!

I can clarify anything that is not clear. I understand if it’s not podcast material!!

All the best, and keep up the fantastic work,

-L

Firebug’s Answer


(7:20)

Question (35:36)


Hey AFB!
Thanks for the recent Pod with Terry on trusts! It was very heavy but very insightful, I’ve always found similar pods/articles to be too broad-brushed or high level to be as actionable.

I just have a question regarding the actual distribution of income in a discretionary trust. Let’s use yours, for example.

You mentioned your retired parents are beneficiaries of your discretionary trust – how then do you make sure that the $18K (or whatever the tax-free threshold worth of income is) can still be used by you when it is “distributed” to them? (quotation because Terry mentioned that the transaction doesn’t necessarily have to be made).

In other words, how do I distribute it to the beneficiary on a tax level, but keep the money for me to use/spend?

Sorry for the long paragraph, but really hope you can help out on this one. Thanks!

-Calvin

Firebug’s Answer


(35:36)

Question (41:36)


Can you ask Terry about the consequence of buying an LIC in an individual name vs. trust and then distributing income via the trust, i.e can we give each kid 416$ but no attached franking and instead give the franking to the higher income earner?

If the portfolio generates $3,500 worth of fully franked income with franking credits, can we give child 1 $416 and child 2 another $416 while spouse gets the remaining 2668 plus all the franking credits?? or better still 2668 to the spouse and only the 1500$ franking credit to the husband higher income earner??

-Mohammed

Firebug’s Answer


(42:38)

Question (43:36)


I am currently in the highest marginal tax bracket 47% and working as a sole trader/contractor.

My wife works part-time as she has to take care of our child. I understand as a sole trader/contractor, I am under PSI rules for tax purposes and I cannot contribute my income to my wife and child via family trust because of PSI rule.

I was wondering with my current situation, are there any rules that can be bent to be under PSB so that I can open a discretionary family trust and distribute my income to my wife. Many thanks for your both time.

Kind Regards

-Mike

Firebug’s Answer


(43:48)

Question (45:11)


I would love to hear about Estate planning/Will process for families with international assets to ensure that global assets pass on to the kids. Also, what’s the best way to nominate an international guardian for minors to cater for the unfortunate scenario of both the parents passing away.

Cheers

-Amit

Firebug’s Answer


(45:40)

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