TRUST WITH CORPORATE TRUSTEE

CASE STUDY

INCORPORATING A CORPORATE BENEFICIARY
Steven is self-employed in the civil construction earth moving industry and he is operating as a sole trader….

Steven is a Single Dad

Steven is single and has one dependent child. His average annual net profit amounted to approximately $90,000 per year.

Profit Fluctuations

Steven’s net profit can fluctuate widely throughout the year with lows of $60,000 and spikes up to $280,000 per year, depending on the number of contracts available during different seasons.

THREE PROBLEMS

1. As Steven was single there was no opportunity to split income, thereby having no control of marginal tax rates which could vary from 34.5% to 47%.

2. Difficulty in predicting income when calculating varying quarterly PAYG installments.

3. Cash flow issues associated with PAYG installments,
For example; Steven could end the tax year having a greater or lower tax liability than was estimated for PAYG installments.

Steven acted on our advice

Steven restructured his business operation into a family trust with a variation, a corporate beneficiary was added.

A corporate beneficiary helped to level the income and maintain a level marginal tax rate and associated cash flow.
When profit was high a portion is distributed to the corporate beneficiary with a tax rate of 30%.

An actual money transfer occurred with the distribution to the company and company tax was paid. In a low income year no distribution was made to the corporate beneficiary and, depending on his income threshold, a dividend would be paid from the beneficiary company to Steven which had imputation credits attached, effectively making it tax paid income.

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