What is a Discretionary Trust – Leigh Barker Tangible Assets

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A discretionary trust is a structure established to hold property for the benefit of other persons commonly known as beneficiaries who have no fixed entitlement or interest in the trust funds. A discretionary trust is governed by the terms of the trust deed and the trustee is the legal owner of the trust property.

Discretionary trusts generally have the power to determine which beneficiary will receive payments from the trust. In addition, the trustee can select the amount of trust property that the beneficiary receives.

Discretionary trusts still serve a useful function

> Asset protection – as no one individual is the owner of the assets held in a discretionary trust then property held by a trustee cannot be taken by a creditor
> Estate Planning – to hold assets for future generations of the same family
> Tax Planning – under current laws beneficiaries pay income tax at their marginal rates and since the trustee has the power to choose which beneficiary should be paid they may select the beneficiary with the lowest marginal rate

A discretionary trust is required to a tax file number (TFN) and where relevant an Australian Business Number (ABN) or GST registration. The trust deed specifies the powers of the trustee which are generally sufficient to manage the trust in an orderly manner.

As the legislation that governs discretionary trusts is often subject to parliamentary review a regular review of trust deeds is warranted to ensure that the structure is adapted to changes that effect business and family circumstances.

Please note: Prepared by Leigh Barker Tangible Assets, MWC Group, Accountant, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.

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What is a Trust – Leigh Barker MWC Group

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A trust is a business structure whereby the trustee conducts a business on
behalf of the beneficiaries. As a trust is not a separate legal entity, a
trustee must be appointed.

A trustee can be an individual or a company whereas a beneficiary can be a
person, a company or the trustee of another trust. The trustee will manage
investments, maintain records, and manage assets and distributions. The
overriding duty of a trustee is to adhere to the terms of the trust deed and
to act in the best interests of the beneficiaries.

A trust is established by a formal deed that outlines how the trust is to
operate. The trust deed defines the relationships between the trustee and
the beneficiaries and sets out the duties and powers of the trustee.

A trust distributes on an annual basis all profits to the beneficiaries who
pay tax individually and provided that all profits are distributed a trust
does not pay tax.

A trust structure has both advantages and disadvantages and without
identifying any specific type of trust they are generally seen to be

  • Asset Protection
  • The ability to pass wealth from one generation to the next
  • A reduction in liability where a company acts as trustee
  • The expense of establishing and administering
  • The inability to distribute losses
  • The limited life of the trust deed

Prior to deciding on a business structure seek professional advice from an
accountant, solicitor or business advisor to ensure that the structure
selected meets your personal circumstances and business objectives.

Please note: Prepared by Leigh Barker MWC Group, Accountant, Portfolio
Finance, Gordon, West Pennant Hills and Tangible Assets,. Note that all
content of this blog is general in nature and anyone intending to apply the
information to practical circumstances should seek professional advice to
independently verify their interpretation and the information’s
applicability to their particular circumstance.

What is a Sole Trader – Leigh Barker MWC Group

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Where an individual operates a business as the sole person they are
generally referred to as a sole trader.

Becoming a sole trader is the simple and relatively inexpensive. A sole
trader has full control of all assets, makes all business decisions, is a
low cost structure and has fewer reporting requirements.

A sole trader has many characteristics, some of which are listed below

  • Unless a business name is required, set up costs are negligible
  • Administration is generally limited to bookkeeping and accounting
  • A sole trader retains all the profits of their business
  • A sole traders financial information is kept private
  • A sole trader is legally responsible for all aspects of the business
  • A sole trader is personally liable with unlimited liability

A sole trader business model is most popular with tradesman and specialist
service providers prior to commencing business as a sole trader

  • determine if any form of authorisation or registrations are required
    from regulators or local authorities
  • consider managing the business separately by operating from a
    separate bank account
  • ascertain if business insurances are required or desirable
  • find suitable premises to operate from within

As a sole trader business grows it is relatively easy to change this form of
business structure or to close a business operating as a sole trader.

Prior to deciding on a business structure seek professional advice from an
accountant, solicitor or business advisor to ensure that the structure
selected meets your personal circumstances and business objectives.

Please note: Prepared by Leigh Barker MWC Group, Accountant, Portfolio
Finance, Gordon, West Pennant Hills and Tangible Assets,. Note that all
content of this blog is general in nature and anyone intending to apply the
information to practical circumstances should seek professional advice to
independently verify their interpretation and the information’s
applicability to their particular circumstance.

What is a Business Type – Leigh Barker Tangible Assets

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There are numerous business formats available and the type that is selected may be dependent upon a business owner’s business objectives, finances or interests. Common business types be categorised as

  • Home Based Business
  • Family Business
  • Online Business
  • Franchise Business
  • Contractor

A home based business is a small business that operates from a home office. Indicatively there are few employees. Flexibility, convenience, lower overheads, income tax savings and no commuting are just some of the advantages of this form of business.

A family business can be of any size and are found in almost every business sector. Family members exercise control over the business by way of ownership, policy direction and management when employed in key positions. The succession of a family business transfers to the next generation.

An on-line business is any form of business that is conducted over the internet which acts as the conduit for all business activities. Business activities can comprise the buying and selling of products, supplies or services in almost every business sector. Anyone can start an on-line business.

A franchise is a business relationship where on party grants another party the right to distribute goods or services and to use the business name for a fixed period of time in exchange for a franchise fee which may be an upfront payment or an ongoing fee or a combination of both.

A contractor is the owner of a business that hires out their services to other businesses. Contractors negotiate their fees and working arrangements. Contractors generally apply their own process, tools and methods to perform their work.

Please note: Prepared by Leigh Barker Tangible Assets, Accountant at MWC Group, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance

What is a Business Structure – Leigh Barker Tangible Assets

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When starting out in business one of the most important decisions to be made is identifying what type of business structure is most relevant to your needs. Thus it is important to review the advantages and disadvantaged of each different business structure the most common being

  • Sole Trader
  • Partnership
  • Company
  • Trust

A sole trader is an individual who is legally responsible for all facets of the business. This is the simplest and least expensive business structure for those commencing business in Australia.

A partnership is two or more people or entities running a business together. A partnership is relatively easy to establish and requires its own tax file number.

A company is a separate legal entity that has the same rights as a natural person. A company is owned by shareholders who can limit their personal liability and are generally not liable for debts.

A trust is an entity that holds property or assets for the benefit of others called beneficiaries.

When making the decision as to which business structure is most suitable for your needs investigate each option carefully in order to understand what licenses are required, what tax is payable, what control do you have over the assets, what are the ongoing costs & what is your status within the entity.

As a business grows and expands it may be necessary to change the business structure. Obtaining professional assistance is important so speak to your accountant or business advisor when deciding upon a business structure.

Please note: Prepared by Leigh Barker Tangible Assets, Accountant at MWC Group, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.

What is a Debit & Credit

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Within the accounting system the concept of double entry bookkeeping whereby every accounting transaction affects at least two accounts.

The entry recorded on the left is known as the “debit” and the entry recorded on the right is known as the “credit”.

The debit entry can increase an asset or expense and decrease an income or liability account whereas a credit can decrease an asset or expense account and increase an income or liability account.

Within the accounting process there are rules that govern to use of debits and credits

  • Accounts with a debit balance increase when a debit is entry is added
  • Accounts with a credit balance increase when a credit is entry is added
  • The total dollar value of all debits must equal the total dollar value of all credits

The most common accounts where debits and credits are applied are as follows

  • Sales – debit accounts receivable & credit sales
  • Sales Invoice Paid – debit bank & credit accounts receivable
  • Cash Sales – debit bank & credit sales
  • Cash Purchase – debit expense account & credit bank
  • Bank Loan – debit bank & credit loan payable
  • Repay a Loan – debit loan payable & credit bank
  • Pay Employees – debit wage expense & credit bank
  • Bank Interest – debit interest expense & credit bank

Thus all accounting transactions are tracked as either a debit or credit in the accounting ledger.

Please note: Prepared by Leigh Barker Tangible Assets, Accountant at MWC Group, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.