Choosing the right legal and tax structures to optimize your wealth building
Family trusts and SMSFs give you the best structures to mitigate tax and risk. With SMS, we make these accessible and easy to manage.
The right structure can significantly impact your after-tax returns, asset protection, and flexibility. Different structures offer different benefits for tax minimization, asset protection, and investment control.
A Self-Managed Super Fund is a private superannuation fund that you manage yourself. It provides greater control over your retirement savings and investment decisions compared to retail super funds.
Direct share ownership and exchange-traded funds
Residential and commercial property investments
Private equity, collectibles, and other alternatives
A Family Trust (Discretionary Trust) is a legal structure that holds assets for the benefit of family members. It provides flexibility in distributing income and capital gains to minimize tax.
Distribute income to family members with the lowest marginal tax rates. For example, distribute to adult children who may have lower incomes, or to family members with tax-free thresholds.
A Unit Trust is a structure where investors hold units (similar to shares) in the trust. Each unit represents a fixed entitlement to income and capital, unlike discretionary trusts where distributions are at the trustee's discretion.
| Feature | Unit Trust | Family Trust |
|---|---|---|
| Distribution Flexibility | Fixed | Discretionary |
| Transferability | Yes | Limited |
| Tax Planning | Limited | High |
| Complexity | Lower | Higher |
A Corporate Beneficiary is a company that receives distributions from a trust. This structure can provide tax benefits by capping the tax rate at the corporate tax rate (currently 25% for small businesses, 30% for larger companies).
Highest marginal tax rate
Corporate tax rate
Tax-free in pension phase
Education Bonds are investment products designed to save for children's education expenses. They offer tax benefits and can be used as part of a broader wealth building and education funding strategy.
Consider using family trusts or SMSFs for education funding, as they often provide more flexibility and lower costs than dedicated education bonds. The key is to start early and use tax-effective structures.
Family trusts and SMSFs give you the best structures to mitigate tax and risk. Here's how they compare:
| Structures | Individual | Family Trust | Retail Super | SMSF | SMSF Pension |
|---|---|---|---|---|---|
| Choice of Asset | Yes | Yes | Partial | Yes | Yes |
| Holding Fees | No | $3,000 | 0.5% | $1,500 | $1,500 |
| Income Tax Rate | 47% | <27% | 15% | 15% | 0% |
| CGT Rate | 24% | <14% | 10% | 10% | 0% |
| Bankruptcy Protection | No | Yes | Yes | Yes | Yes |
Consider this example where implementing SMS strategies results in significant financial improvement:
Result: Only 1.5% annual wealth increase
Result: 5.8% annual wealth increase (300% improvement)
Key Takeaway: In this example, the same income and investments with SMS structures and strategies produced a 300% improvement in yearly wealth accumulation, without changing the underlying investment returns.
Choosing the right structures can significantly impact your wealth building:
The key is to use the right structure for the right purpose, often combining multiple structures to optimize tax, protection, and flexibility.