3 LEGAL STRUCTURES USED BY THE RICH TO PROTECT AND GROW WEALTH

almost 8 years ago

For those of you who only earn ordinary income as an employee, this advice is not going to help you in your current circumstances. Not that there is anything wrong with being an employee, it's just the tax system gives you almost zero flexibility in structuring your tax affairs. Your tax is paid before you ever even see the money thanks to the PAYG system through which Caesar has already taken his share before you even see it.

Not so for the rich! By making smart use of a winning combination of companies and trusts, they are able to both maximise their asset protection whilst minimising their biggest liability - tax.

Company

The advantages of running your business activities through a company make it the business structure of choice for these reasons:

companies pay tax at a special tax rate of 30% or 28.5% for small businesses under <$2mil
dividends paid to shareholders get franking credits which means that the shareholder receives a discount or refund from the tax already paid.
shareholders enjoy limited liability which means that their assets are safe from the liabilities of the company
companies are great vehicles for fundraising as they can also borrow and issue shares

Family Trust

A trust is simply where a trustee holds assets as its nominal owner on behalf of beneficiaries. A family trust is a discretionary trust that allows income and assets to be distributed to beneficiaries (family members) in a way that maximises it's beneficiaries tax-free thresholds and marginal rates. Typically income can be shared between husband, wife and even children in such a way that means that the tax bill is as low as possible.

The best way to take advantage of these two structures is to run your business through a company which is owned by the family trust. Once you have set this up you can make distributions of the company's earnings to family members in the most tax effective way possible. Furthermore the family's personal assets are protected by the limited liability structure of the company.

Self-Managed Super Fund

In ordinary retail and industry funds you can be sure that at least a few percent of your funds each year is being lost to management and administration fees. In a self-managed super fund or SMSF, members themselves control the investment strategy, asset mix and management of the fund rather than paying someone else to do it. Members of the fund are either trustees of the fund or directors of the corporate trustee.

There are currently fairly restrictive compliance costs imposed by the government which mean you probably need a super balance of at least $200,000 to make it worthwhile, but for the rich the SMSF offers superior flexibility. It is even possible to borrow money and buy property through a SMSF.

entrelegal can help you set up a company, family trust and SMSF. Get in touch if you are serious about asset protection and wealth creation.

Don't get mad at the rich, the government, the economy or the 'system' for holding you back. Take advantage of these legal structures and get even!