I’m looking at an issue for a bloke. He has read something about tax concessions when you sell a small business and he thinks he might be paying too much tax on his business sale. Conceptually he is correct. Technically he is rooted. Bloke sets up a business ten years ago and asks his accountant to set up a company for him. Standard stuff, right? After all companies only pay tax at 30% - bargain. He does all the right things and re-invests profits and grows a great small business. Just sold it for roughly $5 million. The buyers bought the business from the company rather than the shares in the company as they were understandably concerned about undisclosed liabilities that would remain with a share purchase. Started from scratch so prima facie capital gain is $5 million. Once all is said and done and the company has paid its tax and then paid him the cash out as a dividend and he has paid tax on that, he is left with about $2.7 million. The government has the other $2.3 million. He has debts and his wife has put up with his business bullshit for ten years and she wants play time. $2.7 million won’t cut it. But that’s it I’m afraid. What’s done is done. I don’t have any tricks for him now, especially since year-end has passed and all that year-end tinkering around the edges is not possible. “Hey”, I ask, “did the idea of using a trust ever come up?” “Well not in the beginning. I just asked my accountant for a company and he did it”. “So he just did what you asked and didn’t explore anything else?”. "He is not like other accountants who want to just sell complex stuff so they get more fees”. “Ok. How about later? Did it ever come up again?” “Yeah but he said trusts are too complicated and aren’t worth the hassle”. I’ve heard that before. In fact it was the impetus for me to quit my last job. They are complicated but not if you take the time to study them and work out how to use them properly. Are they worth it? Let’s do some sums. Costs $500 more to set up than a company. Maybe $1,000 a year more in accounting fees (that’s the accountants’ “selling stuff so they get more fees” that he referred to). As it stands, the government got $2.3 million of his $5 million. Had his business been established through a trust, and the tiniest attention paid to managing that trust properly, the tax take by the government would have been….$580,000. Leaving him with about $4.42 million instead of $2.7 million. About $1.7 million more. I can’t believe accountants still don’t seem to know this. So, are they worth hassle? (Trusts, not accountants. Accountants are still a necessary evil at least for lodging tax returns a lot of the time). That’s why it’s called tax PLANNING. Possibilities in the future count, not just the present. You and your advisers need to be willing and able to look there. Not just settle for what’s easiest now and a quick invoice. I wonder if any of them have them have the stomach for a negligence suit.
Posted on: Sat, 31 Aug 2013 06:09:37 +0000
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