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Structuring – Tax effectiveness, asset protection, utility, and estate planning

While we often cover different ways to make money, this episode is focused on structuring yourself and your assets in ways to protect yourself and potentially help you grow your wealth. Tune in for some tips and tricks in the structuring space:


Personal or Joint Structures


The most important step in any journey is the first one so when it comes to money and investing, the best thing you can do is just getting started. Host Andrew Baxter notes that down the track you may wish to think about more complex structuring but to begin with you simply go with a personal structure for yourself or a joint structure if you have a partner and wish to use a joint structure. There are different rules with different assets, but when it comes to income you will typically be taxed by way of income tax brackets in a typical sense. As such, from a tax perspective personal structures are not ideal as this typically induces higher tax bills which for obvious reasons is not favourable.


Company Structures


Corporate structures are beneficial in many senses. Firstly, companies are taxed on a fixed structure meaning they do not incur more tax as they earn more. Host Andrew Baxter explains that sales of assets even within a year do not incur capital gains tax for company structures as they are deemed income. As such, the gains made on assets are taxed at the same rate as any other form of earnings which for obvious reasons makes a significant difference over time. This may not be worth doing unless you are earning above a certain amount as there are costs associated with setting up a company structure so it is definitely not where you would start with your money and investing efforts and likely something to concern yourself with a little way down the track.


Trust Structures


Trust structures are typically more complex than the other structures we have discussed so far in this episode. There are also quite a wide variety of different types of trusts that can be set up, each serving different purposes. Host Andrew Baxter explains that there are special needs trusts which are available to those with a disability or those who support someone with a disability. These are highly tax effective and are an example of where a trust can be effectively used to protect wealth from taxation. A discretionary trust is one of the more commonly used trusts and as the name suggests it enables the trustee to distribute income and do so more widely to lower the tax payable overall. A trust functions as its own legal entity so if for whatever reason someone comes after you, they are unable to take form within a trust as those assets do not technically belong to you, but to the trust. Unit trusts are another form of trust that are commonly used. In essence, the ownership of the trust is split up in any given way which can vary depending on how it is set up. Proceeds from the trust are then distributed according to the share of the trust which each person is entitled to. 


Self-Managed Super Funds

SMSFs are another structure widely used in Australia which most people will have even if they did not make it themselves. Host Andrew Baxter explains that they are great from a tax perspective as well, with plenty of tax breaks coming from super when compared to the typical income tax brackets we have here in Australia. SMSFs are highly politicized, as are the benefits that come from other structures as they are often viewed as ways of masking money from tax. There may be an element of truth to that, but as long as the steps taken are within the rules that have been set out, then there is no reason not to try to make them work to your advantage. Of course, SMSFs are a highly complex topic just like some of the other structures discussed in this episode. It is important to seek advice and build a solid team around you who can help you choose and set up the structure that is right for you.

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