Business Structures and Financials Disclaimer This information was prepared by The Colonial Mutual Life Assurance Society Limited ABN 12 004 021 809 CMLA for the use of advisers only and is

Document Sample
Business Structures and Financials Disclaimer This information was prepared by The Colonial Mutual Life Assurance Society Limited ABN 12 004 021 809 CMLA for the use of advisers only and is Powered By Docstoc
					Business Structures
  and Financials
Disclaimer

This information was prepared by The Colonial Mutual Life
Assurance Society Limited ABN 12 004 021 809 (CMLA) for the
use of advisers only and is not to be issued or made available to
members of the public. The information and examples are of a
general nature only and should not be regarded as specific
taxation, superannuation, retirement or social security advice.
It is based on the continuation of present taxation, social security,
superannuation laws, rulings and their interpretation. CommInsure
is a registered business name of CMLA.
Business Insurance
    Policy Ownership and Tax Case Study – Bedrock Toys

   Fred Flintstone and Barney Rubble are co-owners of a boutique toy
    manufacturing company, “Bedrock Toys”
   Flintstone Family Trust and Rubble Family Trust each own 50% of
    shares
   The business is valued at $2 million
   The building and land of business premises is valued at $1 million and
    owned by the Rubble Family Trust.
   Fred provided start up capital of $200,000.
   The business has long-term debt of $500K with CBA. Fred and Barney
    signed the CBA Deed of Guarantee when they took out the loan.
   Total revenue last year (2007/08) was $1 400 000 M
   Net after-tax profit last year (2007/08) was $400K
Policy Ownership and Tax Case Study – Bedrock Toys

Fred                               Barney
   works in the business and is    does not work in the business
    100% responsible for sales      His Family Trust was paid
    and account management          $200K of the 07/08 profit
   has salary package of
    $150,000 pa                    Barney has
   His Family Trust was paid
    $200K of the 07/08 profit       a working spouse (Betty –
                                     aged 38 – Lawyer earning
Fred has
                                     $140,000 per annum)
   a non-working spouse (Wilma     a young child (Bam Bam - 7)
    – aged 39)                      House with no mortgage.

   a young child (Pebbles - 7)
   House with no mortgage.
Philips Trust Arrangement
 Flintstone Family Trust                     Provides premises &         Rubble Family Trust
     -50% ownership                             Capital Assets              -50% ownership
   of ABC Service Trust                                                   of ABC Service Trust


                                                  Pays                    Distribution of profit
                                                  Rent
           Distribution of profit



                                       Bedrock Toys
                                      (provides admin &
                                    manufacturing services)


                      Wages                                        No Director Fees



                                       Issues      Pays
                 Fred Flintstone      Invoice     Invoice           Barney Rubble




                                         Toy Stores
    Policy Ownership and Tax Case Study – Bedrock Toys


   What life insurance policies are required?

   What sums insured are required ?

   Who owns the insurance policies?

   Who pays the insurance premiums?

   What else needs to be put in place to ensure the effectiveness of this
    business insurance solution ?
Answers
    Policy Ownership and Tax Case Study – Bedrock Toys
Key person Revenue Purpose Cover
    Death, TPD and Trauma on Fred’s life only
    Policy owned by Bedrock Toys
    Premiums paid by business
    Premiums are tax deductible to the business
    Proceeds taxable at company tax rate
    Sum insured to be calculated once additional information gathered.
     i.e: how long to recruit/train a replacement/loss of profit or revenue
    Need to document the purpose of this insurance
         Eg: minutes of meeting
Income Protection for Fred - $9,375/monthly benefit ($112,500/ year)
    Owned by Fred or Bedrock Toys?
    Policy Ownership and Tax Case Study – Bedrock Toys
Capital Purpose Cover
   Death, TPD and Trauma on Fred’s and Barney’s lives
          Fred = $1,000,000 , Barney = $800,000 (net amount required)
   Policies owned by the Bedrock Toys, therefore two separate policies
    needed.
   Premiums paid by the business
   Premiums are not deductible
   Proceeds are tax free for Death, but may have CGT for TPD/Trauma
   Need to document the purpose of this insurance       Eg: minutes of
    meeting
   Need agreement between Fred, Barney & Bedrock Toys to release
    guarantee (likely over Fred’s & Barney’s homes).
    Policy Ownership and Tax Case Study – Bedrock Toys


Buy/Sell Cover
   $1.3 M Death, TPD, Trauma needed for Fred, however subject to:
         Maximum sums insured
         Revenue or Capital purpose cover already taken
   Policy owned by Flintstone Family Trust
   Premiums paid by Flintstone Family Trust
   Premiums are not deductible
   Proceeds are tax free for Death, but may incur CGT for TPD/Trauma.
   A written buy-sell agreement is essential
    Policy Ownership and Tax Case Study – Bedrock Toys


Buy/Sell Cover
   $2.5 M Death, TPD, Trauma needed for Barney, however subject to:
         Maximum sums insured
         Capital purpose cover already taken
   Policy owned by Rubble Family Trust
   Premiums paid by Rubble Family Trust
   Premiums are not deductible
   Proceeds are tax free for Death, but may incur CGT for TPD/Trauma.
   A written buy-sell agreement is essential
    Policy Ownership and Tax Case Study – Bedrock Toys


Wilma
   Life/TPD/Trauma cover
             Nanny and housekeeping for 11 years ($500,000 to $1
              million)
   Child cover for Pebbles - $100,000
Betty
   Income protection of $8,750/month ($105,000 /year)
   Life/TPD/Trauma cover – nanny and housekeeping.
             Nanny and housekeeping for 11 years ($500,000 to $1
              million)
   Child cover for Bam Bam - $100,000
Questions ?

				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:137
posted:6/8/2011
language:English
pages:14