SITUATION
Proposal Name: Red Soil Holdings Trust
Initiated By: Rory
Submission date: 2017FEB15
Background: Fat Bandicoot members have expressed interest in purchasing land. The large sums of money involved make it imperative that we develop a structure and written rules and expectations around this.
Summary of proposed changes: setup a separate holding organisation to own land
How will this proposal advance the objectives of the Association? by allowing Fat Bandicoot to access land for its core purposes
What direct or indirect conflicts of interest does the initiating member or any other member have in this proposal? none
Will or might this proposal lead to the Association trading while insolvent? No, the Association will not be required to fund this.
What are the proposal's effects on other legal, reputational or financial risks? Fat Bandicoot will be the Trustee, a position of legal responsibility for the assets of the Trust. These responsibilities must be taken seriously, but should not expose Fat Bandicoot to risk.
Specific responsibilities:
- A trustee must carry out the terms of the trust;
- A trustee must act in good faith;
- A trustee must preserve the trust assets;
- A trustee must exercise reasonable care in the administration of the trust;
- A trustee must not benefit from their position as trustee;
- Trustees must not put themselves in a position of conflict or of compromise;
- A trustee must keep proper accounts and records
TIMINGS
What date would the proposed project begin? 2017MAY01
What date would it be in useful operation? 2017JUL01
What date would it be retired? 2097APR31
RESOURCES
What resources will it require? Money, materials, labour etc.
For each resource,
- Will it be donated? By the initiating member, or another person?
- if it will not be donated, can it be supplied from goods on hand?
- if not, can it be purchased with existing Association funds?
- if none of these, who will be called on to pay for it?
- Can the required labour be sourced internally via the TaskMarket ?
- if not, can the required labour be recruited as members?
- if not, how will they be paid?
Will the project require its own bank account? No
What planned activities will the project require?
- Approaching potential investors, both Fat Bandicoot members and our friends.
- Drafting a Trust Deed
- Hiring a lawyer to approve it
- Drafting a Lease Agreement between Red Soil and Fat Bandicoot that satisfies arms-length requirements.
- Regular use of an accounting package for all transactions.
- Annual Unit trust distribution statements
- Annual tax statements
- Annual review of investments
What contingent activities will the project require?
METHOD
Step by step plan, with contingencies, and operating instructions
- Trust deed suggestions
- A strictly commercial operation, with a target 3% net rate of return from leasing operations.
- Investors will want a commercial rate of return, which we will generate by charging lease payments at market rates.
Fat Bandicoot will be a "unit holder", and will thus get back a percentage of its lease payments.
Comment - Fat bandicoot would be a better trustee
Comment - Rory - Fat Bandicoot can be both, in a non-discretionary trust.
- Fat Bandicoot can buy out other Unit Holders as money becomes available.
- Fat Bandicoot may wish to lease a small area in the first 12 months, with the balance of the land leased commercially.
- As capital, labour and knowledge become available, Fat Bandicoot can expand its area of operations, displacing commercial/conventional leaseholders.
- Leasing land for sheep or cattle is common, low-risk and generates a steady return. Red Soil may wish to include fencing maintainence obligations in the contract, or outsource those separately, possibly to Fat Bandicoot if labour is available.
- Superannuation Industry (Supervision) Regulations 1994 - to avoid being classifed as an IHA for superannuation purposes, the Trust should avoid mortgages, investing in shares, and leasing out anything other than business real property. This is rather annoying in that it forces us to choose between being eligible for bank financing or being eligible for SMSF investment.
OUTCOMES
Fat Bandicoot will be able to lease land
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