Chapter 8 — Financial Protection

People often ask us what they can do to protect themselves financially, and we have found that the following three structures are beneficial to many people:

Trusts – for asset protection.

Private Foundations – for operating “in the private” and eliminating personal tax obligations.

SMSF (Self Managed Superannuation Fund) – to take control of your own superannuation and prepare for your retirement.

Trusts

We touched on trusts in our previous chapter (“Strawman”), which can be a bit heavy going for some people, so we are going to simplify things  a little further in this chapter.

Essentially, a trust is a legal relationship whereby one person - the ‘trustee’ - holds assets for the benefit of one or more other parties - the ‘beneficiaries’. A trust is created by a settler gifting something to the trust so that it is held in trust for the beneficiaries. This is an important step that is often missed by various ‘truth movement’ groups that offer ‘discount trusts’. People either forget to actually gift something, or they ‘loan’ it and then get it back. Either scenario collapses the trust and, if it were ever challenged in court, it would not hold up unless it could be proven to have been properly set up.

Once the gift has been made, a trust deed is created, and that deed sets out the governance and operation of the trust, as well as the powers of the trustee and how the proceeds of the trust are to be passed onto the beneficiaries.

The most common types of trusts are Discretionary trusts – many people refer to these as “family” trusts as they are often set up by members of the same family to protect the family’s assets - and Unit trusts.

A Discretionary Trust, or family trust, is a trust in which the trustee is given the power/discretion to decide which of the beneficiaries are to benefit from the trust.  These trusts are primarily used for asset protection, as the assets of a discretionary trust are distinctly separate from the assets of the beneficiaries of the trust, and may be protected from creditors in circumstances where a beneficiary is sued or made bankrupt.

Basically, if someone was to sue one of the beneficiaries of the trust, even though the trust might, for example, own a property, the entity suing the beneficiary could not attack that property because the trustee of the trust, at his or her discretion, could decree that, at that point in time, that particular beneficiary was not entitled to any percentage of the trust.

Unit trusts operate slightly differently, more like a company. In a company you get shares – in a Unit Trust, you get units. The number of Units you hold determines your share of the income and voting power.

A Unit Trust is cheaper and more flexible than a company.  A company also costs a substantial amount to set up, and also has ongoing government charges that need to be paid each year to keep it registered – such as the annual ASIC fee. A Unit Trust does not suffer this government intervention, or have to pay those fees.

Unit trusts are often used in short to medium term projects such as property developments, where parties put in different amounts to allow the development to go ahead and are then ‘paid out’ in proportion to the number of units they hold in the trust. This is a far simpler and cheaper way to formally and legally manage a project than setting up a company.

What about Private Trusts?

We have heard that there are certain groups around promoting the fact that they can setup so-called ‘private trusts’ for people. It is important to note that there is no such thing as a ‘private’ trust. These groups will simply falsely claim that you live in a State that does not require payment for the stamping of trust documents and, because you are not paying to have the trust stamped, that somehow makes it ‘private’. The whole purpose of a trust is for asset protection under trust law. If your trust is not set up correctly and legally it is of no use to you what-so-ever, so please be careful of any such claims!

We have included a table for you below that outlines the trust stamping requirements for each and every State in Australia.

Once you understand how trusts function, you can actually use them in some very creative ways. For example:

• You can register your car in a trust: this enables you to then sell it down the track without requiring a roadworthy, and without the purchaser having to pay stamp duty and transfer fees. Rather than just selling the car itself, you actually sell the trust - by way of completing a Deed of Variation – which removes you as the trustee, and makes the purchaser the trustee of the trust. As the trust owns the car, and the purchaser is now the trustee, they control the assets of the trust – in this case, the car – and they now have full control over it without the roadworthy, stamp duty and transfer fee obligations.
• You can also purchase your house in a trust: once again, this enables you to sell the property without the buyer having to pay stamp duty and/or transfer fees. This process is a little more complicated, but any accountant with any real knowledge of trusts should be able to explain the requirements and the process to you.

Self Managed Super Funds

SMSFs are becoming more popular all the time, as they provide you with full control over your retirement investment rather than giving that control away to someone – oftentimes a large, faceless corporation – that has absolutely no vested interest in your financial future and/or security.

The main difference between an SMSF and other super funds is that members of an SMSF are the trustees. This means that the members of the SMSF run it for their own benefit as opposed to general Super Funds, which are run just as much to pay the administrators of the fund as they are to benefit the members. As an SMSF trustee you can invest directly in property, artwork, bullion and virtually any valuable asset.

You can even purchase business property, such as an office, and use the property in your business. If, for example, you run your own company and you require an office to operate out of, your SMSF could purchase that office and then rent it out to your company, and all monies will ultimately lead back to you.

True financial freedom requires you to be proactive in all areas concerning your money because no-one cares more about your money than you!

Private Foundations

A private foundation is a legal and lawful entity that can be set up by a group of individuals or a family.

Private foundations are ‘Not-For-Profit (NFP)’ ‘Tax Exempt’ ‘Non-Government-Organisations (NGOs)’. They are managed slightly differently, and much more simply, than incorporated company-type Government Organisations (GOs).

Foundations have been around for at least 2000 years, and most people using them operate in ‘the private’, and would not be dealing with the usual business authorities.

‘The System’, not surprisingly, does not educate people, or promote Private Foundations, because it wants them to remain secret. They are used every day, but predominantly only by the very wealthy. In the same way as, 30 or 40 years ago, very few people had heard of trusts but, nowadays, almost everyone has heard of them, and many people use them, Private Foundations are now in a similar situation, in that the general population is just starting to become aware of them.

The purpose of a Private Foundation is to sustain the Principals and whoever the primary participating Principal chooses by providing goods and/or services to help and assist the general community. It is designed to be a means of paying for food, clothing, lodgings, petrol, phone/internet, and all other living expenses – basically, anything that the participants require to sustain themselves on a day-to- day basis.

Private Foundations can engage in benevolent activities by funding, facilitating, implementing and operating projects and enterprises that are socially and environmentally sustainable, and can work with other private foundations to achieve this.

The benefits of a Private Foundation include:

• Full control of the Private Foundation’s finances. No other entity, other than the primary participants, has any involvement in the Foundation’s finances.
• Not answerable to/auditable by anyone. The Private Foundation operates ‘in the private’, and therefore no ‘public’ entity has any right to interfere or become involved with the Foundation in any way.
• Not required to submit tax returns. As a Private Foundation operates ‘in the private’, it has no obligations to submit tax returns, which only relate to those entities operating ‘in the public’.
• You can, of course, decide if you want to contract with Government bodies regarding the discretionary obligation of any payment.
• Private Foundations are fully compliant with the ATO as a non-profit organisation under tax exempt and self-assessing status.
• Private Foundations have total freedom in their activities.

Private Foundations operate freely in the private domain for the purpose of exercising your natural, inalienable rights for sustenance and helping your fellow man as you see fit, by giving back to the community.

Unlike a Charitable Foundation, a Private Foundation does not generally solicit funds from the public. A Private Foundation is different from a Humanitarian NFP (Not For Profit), which operates for the purpose of humanitarian aid in the public. A Private Foundation is not to be represented as Humanitarian Not for Profit.  Any concessions sought through the use of your Private Foundation would be considered false, misleading, dishonourable, and this is definitely not the purpose of Private Foundations.

Private Foundations have a minimum of two and a maximum of three Principal Participants. (The minimum requirement of two Principal participants to form an Association is as a result of the Anti-Money Laundering Act (AMLA) Global Legislation).

Please note that you cannot be a sole Participant. You can, however, have a ‘silent’ Participant, which is reflected in your Foundation Minutes.

You can also remove a participant by amending the Foundation Articles and writing Minutes of the action and the reason for it. You will need to notify the Foundation’s bank in writing of the changes to the Foundation Articles, however, to ensure that particular participant no longer has access to the Foundation’s bank account.

You may keep regular Minutes if you choose to do so, but it is not a mandatory requirement. All record-keeping is conducted at the discretion of the Primary Principal Participant of the Private Foundation.  Obviously, as we said earlier, this chapter is all about taking control of your finances and responsibility for your life, so we strongly recommend keeping accurate, up-to-date records just as you would in your own business.

Private Foundations do not have employees - they have Participants, Volunteers or Contractors - and those people donate their time and resources to the Foundation.  Many of you will have seen the Surf Lifesaving people shaking their tins and collecting money at every intersection over summer on behalf of their clubs.  These people donate their time and, although they may, in turn, receive some benefit ultimately through the club, they are never directly paid for their time.  This is the same principle which applies to Private Foundations.

You, as the principal participant of a private foundation, can donate your time, effort, energy, wisdom and experience to the private foundation, which may, in turn, invoice some other entity for that, but you are never directly paid. You may, of course, receive benefits from the foundation, in line with the foundation articles – such as having your rent or mortgage paid – but this is definitely not done in ‘exchange’ for anything that you do: it is as part of your inalienable right to sustain yourself on the planet.

You can set up a bank account in the name of your Private Foundation, but you do not have to. If you choose to do so, you must understand that, although the Private Foundation operates in the private, the bank account still exists in the public system and it can be no other way! Accordingly, that bank account will still be subject to all applicable banking laws and regulations.

You can run your Private Foundation without a bank account and stay totally in the private if, for example, your Private Foundation was to invoice entities who paid in cash, gold or silver bullion or BitCoin – which a lot of people are now moving to. It is totally up to you if you choose to open up a bank account in the name of the Private Foundation or not but, obviously, most people require the convenience that a bank account offers.

If you do choose to set up a bank account, all participants can receive a MasterCard debit card which has access to EFTPOS and ATMs around the world, as well full internet banking facilities.

As you can see below, when a card is issued, it is issued in the name of the Private Foundation first and foremost and then notes the name of the participant. This is similar to a corporate card that a company may provide you with. It is important to note that the money in the account belongs to the Private Foundation and not to you personally, you simply have access to it and a right to use it in line with the Foundation’s articles.

Some banks, including Westpac, offer a merchant facility payment platform called PayWay and Mobile PayWay, which you can apply for separately if you require those services. You can even set up a PayPal account for your Foundation – something many other groups say is not possible.  This can be of great benefit to those who intend to provide products or services on-line.

PayPal can accept credit cards on your behalf – saving you on merchant fees – and you can then transfer money across from your Foundation’s Paypal account to your Foundation’s Westpac bank account and access the funds that way.

How do tax, GST and ABNs relate to Private Foundations?

 Tax

There are no regulatory requirements that the Foundation is required to abide by. It is not registered with any Government body.  There is no requirement for the Foundation to submit a Tax return or BAS statements as it does not have an ABN and is not authorised to collect GST.

Again, we remind people that donations through Foundations cannot be tax deductible for others. Tax deductibility can only occur if you register for an ABN and obtain Deductible Gift Recipient (DGR) status, which is not possible through a Private Foundation.

Organisations that are not charities can self-assess their income tax exempt status: they do not need to get confirmation of their income tax status from the ATO -  please visit the ATO’s website for further details.

The ATO allows all of the following organisations to self-assess their income tax exempt status:

• Community service organisations
• Educational organisations
• Health organisations
• Resource development organisations
• Cultural organisations
• Employment organisations
• Scientific organisations
• Sporting organisations

To qualify as a tax-exempt entity, your organisation must be ‘non-profit’ and also meet the following conditions:

• Pass one of three tests – one of which is simply operating in Australia.
• Comply with all the substantive requirements in the entity’s governing rules.  Obviously, you would comply with your Private Foundation’s Articles.
• Apply its income and assets solely for the purpose for which it is established.  Again, this is detailed in the Private Foundation’s Articles.

The ATO has an “Income tax status review worksheet for self-assessing non-profit organisations” – Form NAT 74141 – a completed copy of which should be provided to you by the people who set up your Foundation.

GST

A Private Foundation cannot accept GST.  As it is not a registered ATO collector, the Foundation is unable to collect GST on behalf of the Government. A Private Foundation still has to pay GST, just like every other entity in Australia does, when buying from GST-registered entities.

ABN

As a Private Foundation is not a business, it cannot be issued with an ABN.

If you require an ABN for licensing purposes, you may wish to consider a ‘hybrid’ model where you combine public and private operations.  For example, if you are a licensed tradesperson or you have complex insurance requirements, you may be required to have an ABN. As we are not business advisors, we cannot instruct you on how you structure your business, but you should keep the above points in mind.

Many businesses will demand that you have an ABN before they will ‘do business’ with you, and some may question why you are not charging GST.  The Foundation contracts out its services, and invoices clients using ATO form 3346 which exempts charging GST and removes the requirement for an ABN.

The ATO form NAT-3346 is a statement by the supplier (in this case, your Foundation) as to the reason for not quoting an ABN, and therefore not collecting GST on the transaction.  By using this form, the reporting requirements of the payer are satisfied.  Once again, the people who set up your Foundation should provide you with a copy of this form as well as a sample of a completed form as well.

We are often asked by people who are PAYG (Pay As You Go) employees whether or not they can use a Private Foundation. As a PAYG employee, a Private Foundation may still be an option if your employer is willing to engage you (your Foundation) on a contractual basis.

If they were to agree to that, your Foundation would enter into a contractual arrangement with your employer (former employer, now client),  and then your Foundation would send an invoice to your ex-employer for them to pay directly into your Private Foundation bank account.

This is often a great benefit to your employer, as they would no longer have to pay payroll tax, holiday pay, sick pay, superannuation, etc.

Just be aware that not all employers will be open to this; it will vary from situation to situation.  In general, however, we have found that the larger the corporation, the less likely they are to accept your request.

Please note that there may be superannuation and insurance issues to consider when a Private Foundation operates within that type of contract, as is the usual case with contractual arrangements.  You will also need to be aware that, if you start operating under a Private Foundation, you will no longer receive superannuation payments, holiday pay, sick pay, etc., so please make sure that you understand the full ramifications of operating under a Private Foundation.

It’s at this point that many people start getting very excited and wanting to rush off to their accountants to get them to set one of these structures up.  The reality is that accountants generally know very little or nothing about Private Foundations and their setup, as this is not common knowledge and is not taught in the general accounting curriculum.  Private foundations greatly reduce the need for tax accounting services, and this would obviously compromise their livelihood, so it is not in their best interests to ‘know’ about them or tell people about them.

There is no need to engage an accountant to do the accounting for the Foundation.  Most participants simply use basic bookkeeping to maintain their records. As a Private Foundation is not subject to any auditing requirements, it is entirely at the discretion of the Principal Participant to keep records – but, as we said before, we do, obviously, recommend keeping detailed records. You are not required by any outside entities to use an accountant, as your Foundation is not registered with any of them.

People often ask us if Foundations are able to own assets.  The broad answer to that is ‘yes’, as long as those assets complement the chosen purpose of the Foundation, as set out in the Foundation Articles.  We suggest that you seek independent advice regarding your specific circumstances.  Be aware that a Foundation cannot buy shares in its name as the Foundation does not have an ABN.

Please note that we do not recommend the use of the Foundation for asset protection, as that is the purpose of trusts.

We know of many businesses that have transferred over to using a Private Foundation, including healers, I.T. personnel, internet marketing businesses, builders, personal trainers, mechanics, contractors, and many others.

So, a Private Foundation may suit you!  If it does, how do you set one up?

If you are interested in having a Private Foundation set up for you, we highly recommend the services of the team at ‘Operate in the Private’. They have set up Private Foundations for the founding members of the Know Your Rights Group, and we have been using them successfully for many years now.

We obviously can’t quote a fixed price in this e-book but, at the time of writing, we can tell you that we are aware of some other groups who are charging $2500 to set up Private Foundations – we assure you that the Operate in the Private team charge considerably less than that.  We have also heard that these same groups that are charging $2500 have recently contacted their clients requesting a further payment of $750 to ‘update’ their paperwork, which we know is still incorrect.  And, yet another group, who also charges $2500 to set up a private foundation, charge an additional $1800 to set up a merchant facility which you can do completely free of charge through PayPal.

We have also heard that some groups, that are also charging those same amounts, require foundation participants to then make monthly contributions to their own private foundations!

Despite charging considerably less than their so-called ‘competitors’, the Operate in the Private team provides superior information, documentation and backup service and support.  Here is a list of what the Operate in the Private team provide you with if you choose them to set up your Private Foundation:

• A comprehensive set of FAQ’s (Frequently Asked Questions)
• Your Private Foundation’s Articles and Minutes
• They arrange for the creation of your Private Foundation’s bank accounts
• All the templates you need to run your Private Foundation
• Ongoing support via e-mail, a dedicated Facebook group: a phone coaching service is also available (for a minimal additional charge)
• Detailed PayPal Set Up Process Instructions, including screen shots
• Blank copies of ATO form 3346
• A sample of a competed ATO form 3346
• A copy of the ATO self-assessment guide form NAT 74141

It is important to note that, unlike certain other groups, the Operate in the Private team definitely do not:

• Have access to your bank accounts
• Ask you to ‘contribute’ each month to their own foundation
• Charge you to ‘fix’ paperwork a few years down the track
• Charge extra for setting up merchant facilities

If you would like the Operate in the Private team to set up a Private Foundation for you, or if you have any further questions in regards to setting one up, please be sure to visit their website and/or email them at [email protected]

Please be sure to mention that you heard about them through our e-book, and if you download the disclaimer form in our References section/CD, or via this link, you are eligible for a 10% discount on their current setup fees.

Go back to Chapter 7 or move onto Chapter 9.