Service Trust Agreement
$448 includes GST
Accountant Service Trust Agreement
Is the accounting practice just you? Or do you have 40 partners? It does not matter. You want to share the income with your spouse, family and trusts.
You have an Accountant Service Trust. Sure.
But an Accountants' service trust needs a contract between the accounting practice and the service trust. This is called an Accountants Service Trust Agreement.
Accountants Service Trust Agreement
It is common practice for accounting firms to use a service trust (service entity). A service trust is often a:
1. Family Trust – if just one accountant
2. Unit Trust – if 2 or more accountants
3. Company – not common as profit is trapped and no CGT relief. But useful if you have no family because of the 30% tax rate
Build these 3 types of Accountant’s service trusts on our website.
The Accountant Service Trust is a second business. The accountant service trust provides services to the accounting firm. It charges a fee for providing those services. The Accountant Service trust profits are shared with the accountant’s spouse, children and trusts. They pay tax at a lower marginal tax rate. Therefore, the accountant service trust saves tax. It helps with superannuation benefits and the spreading of income to the accountant’s family members.
But it is not enough to have just an accountant service trust. You need the agreement between the accounting firm and the service trust. This agreement is called an Accountants Service Trust Agreement. The Accountant Service Trust Agreement is a contract. It allows the service trust to supply equipment, staff, receptionist, premises and administration services to the accounting firm.
Accountant Service Trust Agreements are also popular for:
1. Other professionals such as engineers, doctors, dentists and lawyers that can’t otherwise share profit easily.
2. Asset protection – the accounting house holds the high-risk activities (employees, tenancies & advice) the other keeps all the ‘good’ assets (land, intellectual property, business name licence) in a low-risk entity.
(Example, the Accounting service trust registers a new business name. And 24 hours later licences it to the accounting practice. If the accounting practice goes bankrupt the accountant’s service trust takes back the business name and issues it to a new accounting house.)
3. Companies wanting to liberate wealth and move profit into a trust structure. Unlike a company, the service trust can access the CGT tax concessions. Therefore, the service trust often holds appreciating assets. These include real estate, franchises, copyright and ‘leased out’ business names.
Accountant Service Trust = Tax advantages
The accountant service trust is a business. Through the Accountants Service Trust Agreement, services are provided, for a profit, to the accounting firm. The services to the accounting house are provided at ‘market rates’. This is required by the ATO TR 2006/2. The accountant service trust then distributes the ‘profit’ it makes. This is from running the business of services to the accounting house. The profit goes to the non-working spouse, children, trusts and other taxpayers at a lower tax rate.
The accounting firm brings in revenue of $5m. The Accountant Service Trust provides services to the accounting firm. The Accountants Service Trust Agreement sets out the services. Services include cleaning the office, providing secretaries, maintaining the accountant’s diary, computers, marketing, office lease and bookkeeping. The service entity owns the equipment and employs all non-partner staff.
The Service Trust (via the Service Trust Agreement) charges the accounting firm $3.7m in fees.
By providing these services the Accountant Service Trust makes a profit of $1.7m. (This is after it pays its expenses of $2m.) That profit is distributed to the accountant’s spouse, children and other trust beneficiaries.
Accountant’s Personal Services Income
The accountant can’t share ‘personal services income’ (PSI). However, the accountant service trust ‘income’ is not personal services income. This is because the accountant service trust is a separate business to the accounting firm’s practice. The accountant service trust operates on an ‘arm’s length basis’. Therefore, the income is distributed to the spouse, children and other beneficiaries related to the accounting partners.
The Accountant Service Trust Agreement is a type of Independent Contractors Agreement
An Accountant Service Trust Agreement is a type of Independent Contractors Agreement (‘contract for services’).
The principal (accounting firm) requests and pays for the services. The person providing the services is the contractor (accountant service trust). The agreement between the principal and contractor is the Accountants Service Trust Agreement.
- Accountant = principal
- Accountant Service Trust = contractor
- Accountant Service Trust Agreement = agreement
The contractor is ‘independent’. The contractor is not an employee of the principal (accounting firm).
What should the Service Trust charge?
Your accountant, each financial year, tells you what to charge. The Service Trust Agreement allows for this. You charge ‘market rates’. Treat the service trust as a separate non-related business. The Service Trust Agreement allows the service trust to provide many services, including:
(a) plant and equipment (desks, chairs, accountant’s library, equipment)
(b) non-partner staff (build Employment Contracts here)
(d) the office premises
(e) budgeting, forecast, bookkeeping, accounting and debt collection services
(f) marketing, corporate design and identity and brand awareness
(g) additional services — as agreed by the parties from time to time
How do I update the Accountants Service Trust Agreement?
The Agreement is updated by an exchange of emails. Add more services as your accountant suggests. You can add a scope of work, plans, diagrams and specifications.
The Service Trust Agreement is silent on what it charges the accounting firm. So that is never out of date. Your accountant advises you on what the appropriate charges are during the financial year.
How do I structure an accountant service trust?
For a one-person owned accounting house:
If you are two or more accountants owning the accounting practice consider a Unit Trust, instead of the Family Trust.
Help building your accountant service trust agreement
Just telephone us. At no charge, we help you build on our website the accountant service trust agreement.
Adj Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, Dip Ed, BArts(Hons), LLM, MBA, SJD
Legal Consolidated Barristers & Solicitors
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