Protecting your hard-earned assets from legal liabilities and claims makes a lot of sense and involves forward thinking and planning.
Ideally, you would like to ensure that your wealth-creation structures are separated from “risky business”. Any entity conducting business is at risk because of the nature of its pursuits. It is entering into and fulfilling a myriad of legal and statutory obligations wielding a path of protection from issues such as employment laws, superannuation requirements, contractual obligations, duties of care, obligations of fidelity and good faith, trade practices concern, state revenue obligations such as payroll tax and stamp duty, occupational health and safety requirements, privacy obligations, corporate governance, disclosure requirements and the ever present obligations of income tax and GST.
An effective method of protection of assets is ensuring that the assets are held in a different legal entity to the trading risk entity. A manufacturing business for example could have all of its plant and equipment, intellectual property and know-how owned by a separate legal entity as the one operating the business subjected to the risks. It may be possible for the entity owning the assets to license the use of those assets for an appropriate fee to the business operation entity which operates the business using those assets. The business risk entity has the use of the assets to conduct the business but if the business entity finds itself in financial difficulty the assets can be protected from liability.
If your business operating entity is appropriately structured such as a discretionary trust then you can legally ensure that profits from the operation of the business are split between your family members such as your non-working spouse, elderly parents or children in tertiary education thus utilising the marginal tax rates (where the top marginal rate of 45% commences at taxable income of $180,001, the 37% marginal rate commences at taxable income of $90,001 and the 32.5% marginal rate commences at taxable income of $37,001 – all plus 2% Medicare levy)
Where you have a number of proprietors of the business appropriate structures can be put in place to properly protect their interests with a legal relationship document prepared be it a shareholders’ agreement, unit trust agreement or partnership of discretionary trust agreement depending upon the most appropriate legal structure for the circumstances.
Restructuring an existing arrangement may have issues such as capital gains tax and stamp duty to be properly considered before embarking upon a program restructuring your position. Oftentimes a solution for difficulties can be arrived at after careful examination and appropriate legal advice obtained.
Per: Simon Della Marta
Pointon Partners Sydney