Renting from Trust

It is a good idea, but
– you must pay market rent to the trust. So after a few years, your trust may have to pay tax on the pofit it is making (which otherwise you would not have)
– you will lose the CGT exemption
– you cannot do this under a unit trust. If done using a discretionary trust, the trust cannot distribute losses so cannot negative gear your icome – only roll over losses or offset against other trust income.

On the positve side:
– good idea if you are intending to move elsewhere in the future (ie this is not your final PPOR)
– can possible claim depreciation on furniture etc

Terryw
Discover Home Loans
North Sydney
[email protected]

Another positive is that if you have a home business, you can claim part of the ‘rent’ as expenses, without having to worry about losing the CGT exemption if it was your PPOR.

GP, the ATO won’t let you ‘negatively gear’ the house you live in thru owning it via a unit trust..

Cheers
Mel

Thanks, Mel. I assume that also means via an HDT?

GP

Wrap Attack

We use trusts for assett protection. A company as the trustee provides an additional layer of security.

Cheers
Leigh K[biggrin]

WrapAttack,

A few issues:-

1. Although the company tax rate is 30% and any capital gains are assessed at that rate companies are also not entitled to the 50% CGT discount. Trusts are entitled to the 50% CGT discount. This could have a significant tax impact. For example if you had a capital gain (after allowing for incidental costs,etc) of $100K and you held the property for more than twelve months the following CGT would apply:

Company $100K x 30% = $30,000 CGT
Trust $100K x 0.50 = $50K to be distributed to the benefeciaries. Let’s assume that it is distributed to a sole beneficary on the top tax rate of 47% then the tax payable will only be $23,500.

Therefore under a company structure it results in a disadvantage of $ 6,500.

I do agree that if you plan on purchasing and selling the property within 12 months (as you mention in your email) then a company structure will provide better tax advantages. However once the asset is held for more than 12 mths then this structure is not advantageous from a tax perspective.

2. The rate of duty payable will usally be the general rate of duty. Considering that the company owns land then it will be under the land use sentitlement which means an entitlement to occupy land within NSW conferred through an ownership of shares in a company or an ownership of units in a unit trust scheme, or a combination of a shareholding or ownership of units together with a lease or licence. The dutiable value will therefore be the value of the property. This is provided that the shareholders have a right to occupy the property.

If the company memorandum does not entitle the shareholders to occupy the property then it will be a straight share transfer and the duty will be at the lower share duty rates. Note however that the office of state revenue will revalue the shares. So if your company has two shares worth $2 and it holds property worth $300K then it will deem the shares to be worth $300K i.e. each share will be worth $150K and duty calculated on this amount.

3. Everyone should also be aware of the recent changes to the Bankruptcy Laws. Things have changed dramatically and the protection that trusts used to provide is being dramatically reduced.

Wrap attack

The other shareholders would only have to pay stamp duty if they transferred their shares.

Regarding changing bankruptcy laws, they are looking at getting back gifts made if a benefit was obtained by giving the gift. One lawyer has suggested poeple should not sleep with their spouses as the wedding ring may have to be given back if the other half goes bankrupt.

Terryw
Discover Home Loans
North Sydney
[email protected]