Question

3) Regarding Business structure

Dan Murphy is considering a change of his business structure from the sole trader to another structure commencing on the 1st of July 2019 (starting from a new financial year). He has provided you with the following financial and other family details.

Dan is earning $150,000 (net of deductions) per annum from his engineering business.

Judith earns $10,000 (net of deductions) from her teaching job.

They have the following family members living with them.

 Robert Murphy: Dan’s father who is 70 years old. He has retired from his job as chief executive officer of Suncorp Ltd on the 15th of July 2019 (gross income was $2,000) and has not been earning any income since retirement. Judith takes care of him as his health has deteriorated recently.

 Jean Murphy: 19-year-old son. He is a full time university student, currently no income.

 Xavier Murphy: 15-year-old son, full time high school student

 Megan Murphy: 2-year-old daughter.

Dan is considering the following options.

 Remaining Sole trader stucture

 Partnership with Judith in equal profit sharing ratio

 Australian registered private company

 Discretionary Family Trust

Required : Please advise which business structure would you recommend in order to minimise tax on the client’s income. Comment on the tax implications of each business option considered. Show tax working/ all the tax calculation for each option.

Answer 1

Discretionary Family Trust is a great choice. These trusts are fixed up to let the person maintain the trust to decide. Who can profit from the trust moreover how much money beneficiaries will get.
Family trusts are commonly noted as discretionary trusts which contain a family’s assets. Regularly, 1 or more family members will maintain the trust assets for the advantage of their family as a whole. The aforementioned person fixes up trust. Normally, the settlor will be a lawyer or auditor. Once the settlor makes their part in forming the trust, people usually have no more involvement. This person is the legal owner of the property. The trustee chooses how to handle the trust assets. Despite, even though the trustee performs all choices, preferences, and activities reporting to maintaining the property, they do so in the concerns of those profiting from the trust.
It will ordinarily set out==>The purposes of the trust capital, who the beneficiaries are, & the trustee is, & how the amount will be shared from the trust.
Discretionary trusts are an excellent method of producing income to beneficiaries who may be totally dependent or contrarily helpless to maintain their assets.
Tax Implications==>A family trust typically gives 0 tax toward income from inside the trust. Alternatively, the revenue is issued to the beneficiaries, who are taxed at their individual tax rates. So, They are available to share the benefits to as multiple receivers as they recognize qualified.

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