All Topics / General Property / Discretionary Trust – Losses transferrable??

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  • Profile photo of BidBid
    Participant
    @bid
    Join Date: 2004
    Post Count: 18


    I read a post last night dated sometime in late 2003 re discretionary trust losses. (I had a power fluctuation and computer shut down before I could note the dates).
    The discussion thread was about Trusts being able to pass only income to the beneficiaries and not losses in case of negative gearing. One of the post stated that – to claim the losses on individual’s tax return, borrow the money for buying IP as individual and not by the trust. However, the property is held under name of the Trust. So when the rental income is distributed to beneficiaries the interest on the loan is deducted from the income and the resultant losses are claimed on individual basis.[eh]

    My question is whether this is allowable i.e. is there a direct link between the individual’s interest expense and the income received from the Trust to allow the offset under tax rules?

    Profile photo of AceyduceyAceyducey
    Participant
    @aceyducey
    Join Date: 2003
    Post Count: 651

    Bid1006,

    It depends on the type of Trust.

    Hybrid unit Trusts allow you to negatively gear.

    To learn more about Trusts I suggest you buy a copy of Trust Magic from http://www.gatherumgoss.com

    Cheers,

    Aceyducey

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Bid, it is allowable as you are borrowing money to buy income producing units in the hybrid trust. So you can claim the interest on this money against your personal tax return.

    see http://www.chrisbatten.com.au for some details.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of BidBid
    Participant
    @bid
    Join Date: 2004
    Post Count: 18


    Terryw

    I see your point now. How would the bank view this arrangement ie would it be comfortable lending the money for buying units. Maybe yes, if they still hold the mortgage over the property. I will check into this. Meanwhile, do you know any instances where this arrangement has been in place and worked well?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Bid

    I have some clients who use Hybrid trusts and the banks have had no problems with the deals at all.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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