PayPal and Trusts

[Neel]

We are setting up an online business which will be based in Australia. We have been advised it is more beneficial to set up at trust (unit-trust) structure in stead of a PTY type structure as it is just a lot less involved.

The business will take payments through PayPal but PayPal does not allow trustees to open an account in the name of a trust.

Any suggestions how to get around this issue?

[MarkCorke]

Who gave you the trust advice?

• Accountant
• Around the braai barbeque
• Attorney
• Experienced business person who understands that one of the cornerstones of business is the ability to get paid.

[Neel]

Accountant (@$250 per hour) who was not aware at the time that trusts cannot set-up PayPal accounts

PS: Not much time here for praating bull around a bbq as there is no waiting time whilst the fire burns out - gas is just too instant..........still working on my braaidrom. Pickup the 44 gallon drum last weekend. Now to cut it in half. And then I will have a pretty good source of free advice in the future.

[MuthiDoc]

Neel, do what everyone else does - open a Paypal account in your name, get the money in your name, offshore of course, and then decide if you want to loan the money to the trust for cash flow purposes.

Having an on-shore trust has NO (or almost NO) (tax) benefits compared to doing online business in your personal capacity. The only benefit is that there will be administrative continuity when you are no longer able to do the work (death, disability). However, since it is unlikely that anyone will be around to continue the online work anyhow once you chop off, the idea of placing an on-shore trust beneath an online business is a pretty useless waste of money (this is not financial advice, it is a braai-side opinion).

If your Paypal account starts earning real money (let's say a grand or more AU$s a month), then you can worry about the next step - repatriating that money legally.

If I were you, Id get a Lloyds TSB Offshore account with one of their debit cards, tuck it underneath my Paypal account and start selling online. Chances are, you will not make a million in your first month, so you'll have ample time to decide if your venture is going to make it or not. If YES, then I'd worry about the admin details later. From Lloyds, you can direct the flow of money whichever way you wish, and declare it as a loan or as income to your vehicle of choice.

The ultimate bomb-proof system (in my utterly non-expert opinion) is to have an offshore (tax haven) trust holding all the shares in an offshore (different tax haven) company. The company does the work, issues the invoices, receives the payment and pays dividends to the offshore trust. For this, you'd need something better than PayPal, of course, but you're making money, so you can then afford to spend some on a proper payment gateway, right?

However, to fund this model, you'd need to earn a pretty penny via your company, so don't even think of going here unless you've got a steady revenue stream flowing and proven your business model.

Is that a Castle or a Windhoek Lager you're offering me? And I don't like my wors burnt, please.

Frank

[Neel]

Thanks Frank

Certainly options to investigate. One other consideration is that this business has a 50-50 "shareholding" with somebody in South Africa and I am not too sure that they will be too comfortable with the money going into a personal account this side of the waters.

Won't PayPal have an issue if the money collected on a business website goes into a personal account?

[Neel]

Oh...and the beer , I'll have whatever your personal choice is. My local choice here is Boags

James Boag's Pure - water, barley, hops and yeast – all from the only place that is possible, Tasmania. A lager that sources its ingredients from the island and is brewed with no preservatives and no artificial additives to ensure it is the closest thing to purity.

Pure in taste, pure in ingredients, pure
by nature.

And I still take the occasional Windhoek Lager or Savannah.

PS: I am very careful with any wors that goes onto the fire as good wors is quite scarce here

[ShaughnK]

This strikes a chord on a similar subject.
A friend now resident in Australia told me on a recent visit that Accountants in Australia have no clue about trying to structure ones business to pay less Tax. They seem to regard it as high treason to even talk about it. One moaned at my friend " Thats always the first things you Seffrikans always ask me, how do I pay less tax..." He has now gone to a ex SA Accountant and they are on the same wave length.

[MuthiDoc]

Neel, Paypal doesn't much care what sort of site you put up to make use of their service (within bounds of moral reason). As long as you connect the dots correctly, your site can collect the money.

As for your partnership: If you guys don't trust each other implicitly, then the business is going to fail anyhow. Give him the login details to the PayPal account so he can check for himself what is going on there, or mail him a PayPal statement once a month. Or your Lloyds account statement, if required. Transparency. The money owing to him can be paid to his SA bank account on an invoice basis, he pays tax on it and all is above board. No laws broken and everyone happy.

Remember, I see PayPal as a testing phase product, not as the last payment gateway an online business will ever need. As soon as you are making real money, you would need to look at putting more structures in place (and I happen to like my little model), including more payment gateways. At such a point, money flowing to you and your partner should no longer be paid on an invoice basis (taxable), but declared as a dividend to your respective offshore trusts (Botswana trusts are all the vogue nowadays, may I add). Still all legal.

The advantage of this two-stage approach is that you can kill the idea in the bud if you realise you are barking up the wrong tree, without it costing either of you an arm and a leg. And if it DOES work, which I sincerely hope, you will have the cash flow to justifiably set up all those offshore thingies. And more complicated payment gateways.

Shaughn, good point. I noticed how Ozzies seem to regard payment of taxes as a patriotic duty. Unlike us SAffas, who see every hard earned tax dollar go down the gullet of some undeserving pratt, they see their tax dollars go into well functioning parastatals. They take great pride in the things that are built with their tax money. We only have blue light brigades, luxury Swiss watches, e-tolling elephants and semi-naked sushi feasts to show for our tax money. Big difference in approach.

Neel, kangaroo wors is not SO bad, except when it is made from roadkill.

[Neel]

I am all for paying my taxes.........but I am also with an ex-South African accountant :-)