Are your assets protected against risk?

If you own assets, are you sure that they have protection against risks? And how confident are you that you’re minimising the impact of taxation on your returns?

Protecting assets is an art as much as it is a science, so what exactly is asset protection?

Asset protection involves choosing how you own or control your assets and choosing the appropriate entities to own each asset so that you get the optimal protection for them. The goal is to protect your assets from liabilities that might arise from outside risks as well as minimise the tax that applies to the income that’s generated from your assets and your investments. The ultimate capital gains tax also needs to be taken into consideration when you sell those assets and investments. For the purpose of this general summary, “assets” includes a business, real estate, shares, anything of significant value.

What is the optimal structure for a client to use to protect their assets?

A one size fits-all structure is commonly adopted in which all assets are acquired in a discretionary trust. However, this is not ideal and can cause significant problems in subsequent years with not being able to retain earnings, issues with the application of Division 7A of the income tax law and so on. Instead, a multi-step process should be followed that better suits the needs of each individual situation:

1. Understand what assets need protecting. Different types of assets could require different types of ownership structures. For example, are you looking to protect the family home? Are you looking to protect a rental property? Or perhaps it’s a business you are starting.
2. Identify the current and future risks you may face.
   • Are you an employee?
   • Are you already in business?
   • Are you already a director?
   • Will you become a director in the future?
   • Are you looking to run two different businesses with different risk profiles?
3. How will the assets you’re wanting to protect be funded? Are you using personal money that you’ve already paid tax on or are you using cash that a company is generating from profit and the company has paid tax on? If you’re financing the asset what are the repayment terms and how are you going to pay off the debt?
4. How long will the asset be owned? Will the asset go up in value and if so, by how much?

You may not have all the answers to these questions but it’s important to provide as much information as possible to your accountant to ensure they can offer the best asset structure for your situation.

How important is good asset protection and structuring?

It is important to keep in mind that no asset protection and structuring strategy is a guarantee that an asset is 100% protected. A good strategy is about putting up as many roadblocks as possible between the risks you could face and the assets you’re trying to protect. There’s always a risk that a liquidator or a bankruptcy trustee could seek to claw back assets and undo the asset protection that you have put into place. Ensuring you have as many roadblocks as possible and knowing what risks you face now and in the future will all result in a stronger protection strategy.

What steps should I take if I’m concerned that my assets aren’t properly protected?

We recommend that you speak to your accountant as they will be able to advise you on what level of protection your assets currently have. You can discuss with them the risks that you’re concerned about, and as they know your business and your assets best, they’ll be able to give you advice on any changes that you need to make.

If you would like your asset structure reviewed to determine your level of protection or are concerned about any risks they may face, please contact your usual Exant advisor or alternatively our expert Nathanael Lee on 07 3218 3900.