Tax Savings Strategy 221 | Employee Remuneration Trusts
An Employee Remuneration Trust (ERT) arrangement involves a trust being established to facilitate the provision of payments and/or other benefits to employees of an employer. The trustees provide the benefits at the direction of the employer. This strategy is useful to retain and reward employees that are critical and important to the business’s success.
A contribution is deductible to an employer where:
- It is an irrevocable payment of cash.
- The employer reasonably expects their business to benefit from the contribution via an improvement in employee performance, morale, efficiency or loyalty, and
- The contribution is intended to be entirely dissipated in remunerating employees of the business within a relatively short period of time (less than 5 years).
The contributions to an ERT will not be deductible when the contribution is applied for the benefit of owners, controllers or shareholders or when the contribution is capital in nature. The prepayment provisions also need to be considered.
Business Structure Strategy | Limited Partnership
A limited partnership is one where the liability of one or more partners for the debts and obligations of the business is limited. A limited partnership consists of one or more general partners (whose liability is unlimited) and one or more limited partners.
In a limited partnership:
- The general partners manage the business and have the power to enter binding agreements on behalf of the partnership; their liability for the debts and obligations of the limited partnership is unlimited.
- The limited partners are passive investors; they must not manage the business and their liability for its debts and obligations is limited in proportion to the amount they have agreed to contribute to the partnership.
Implementation process:
- Depending upon the state, limited partnerships are either regulated by the relevant state’s Partnership Act or Limited Partnership Act. Where a Limited Partnership Act applies then limited partnerships generally only come into existence when the partnership is registered with the state government body (and the applicable fee paid).
- Limited partnership agreements should be drafted by a solicitor.
Profit Improver Strategy | Upselling
Upselling can involve marketing more profitable services or products, or just exposing the customer to other options that were not considered. Upselling is more successful when the up-sellers know more about the individual customer and understand what the customer values and wants. This information includes the customer’s background, budget, preferences, interests, and previous buyer history.
Research shows that approximately 25% of customers will purchase the recommended upsell product or service. Most companies teach their employees to upsell products and services and to offer incentives and bonuses to the most successful personnel. Care must be taken with upselling as a poorly trained employee can offend a regular and loyal customer and damage their trust and credibility. Also, with some businesses, such as car sales, the customer’s perception of the attempted upsell can be viewed negatively and impact on the desired result.
The secret to successful upselling is:
- Make the upsell after the original purchase.
- Make the upsell relevant to the customers original purchase.
- Limit upselling recommendations. i.e. only one or two.
- Discount the products/services in the upsell.
- Successful upselling begins with a solution to the customer’s problems – always add value.
- Never try and upsell items that are more than 25% of the original order.
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