*First Post Newbie*
We have a chris batten suggested trust structure with:
Hybrid Unit Trust holding commercial property
Hybrid Discretionary Trust as single unit holder of the HUT.
Loan in my name – to purchase units in the trust.
Trustee’s and in both trusts include me.Question>> How can the depreciation of the building (by using a depreciation schedule from a QS) be used to minimise tax?
Eg:
Lease from Tennant: $90K paid to HUT
HUT Expenses on Property: $10K
Depreciation: $30K
Interest paid by me to bank: $80KNow since losses from the depreciating asset cant be passed down to me as the beneficiary and trustee, what can I do with it apart from carry it forward?
Many thanks
Adam
I beleive the HUT trust must claim the depreciation against the rental income received in its tax return. Whatever is left over after costs and depreciation is distributed.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terryw,
Hmmm… If this is the case, I cant see the advantage in the trust…
Another example: I have a group of residential units in my own name (a ‘no no’ i know) and works to my advange over a trust. The figures go something like this:
Rental Income: $20K
Interest and Expenses: $20K
Depreciation on Units on Depreciation Schedule: $5KSo therefore I get a $5,000 tax deduction on my personal income… If this were in a trust, I would not be able to pass on this tax deduction to myself….
If I understand this correctly (and im not sure I do) it means I am better off having the units in my own name…
Any thoughts or clarifications??
Thanks
Adam
Adam, that sounds right with your units. Trusts can’t distribute losses. But they will not always be returning a loss. After a few years the rents will go up etc, and you will be making a taxable profit. Then it would be good if it was a trust. There are also other advantages such as asset protection etc.
With the Hybrid trusts it is a bit different. The loan is in your name, so you personally claim the interest – not the trust. This should leave you trust with a nice profit. From this profit other costs and depreciation are deducted and the net profit is then distrbuted in accordance with the trust deed.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks again Terryw,
I understand mostly now. I think I might sit down and read Dale G’s “Trust Magic” and then revisit this to more fully understand my position.
[cap]
AdanmApap,
If you have a loan in your own name to purchase the units in the HDT then the situation will be as follows:
HUT
Rental Income: $20K
Expenses: $5K
Depreciation on Units on Depreciation Schedule: $5KNet Income $ 10K
Net Income distributed to HDT. You own all the special income units in the HDT so the $10K income will be distributed to you.
Your position will then be
HDT Income for Special Income Units $10K
Interest in Loan to acquire units ($15k)Net Loss $5K
This can be claimed against your other income and is how you negative gear through a trust.
Thanks coasty,
Excuse my ignorance, but does this mean that I would then have to fund $5K out of my own pocket and therefore be tax deductable? And what happens to the $5K of depreciation that is still in the trust…? Could this then be distributed to other beneficaries?
Adam
Apap,
Yes you will have to find the net loss of $5k (if you are on the top tax bracket the ATO will be funding about $2.5K so you will need to find another $2.5K) that is why it is called negative gearing.
Im at a loss as to what you mean by the $5K in depreciation remaining in the trust. It doesnt remain in the trust at all. It is used to reduce your rental income in the trust and ultimately arrive with a net profit figure that has to be distributed to the special income unit holders.
Coasty,
Thanks again… The $5K is as you explained: Net Profit.
I now understand all (well maybe not all, but a whole lot more.[biggrin]
Cheers,
Adam
We have a chris batten suggested trust structure with:
Hybrid Unit Trust holding commercial property
Hybrid Discretionary Trust as single unit holder of the HUT.
Loan in my name – to purchase units in the trust.
Trustee’s and in both trusts include me.apapworth,
I was just reading your post because I also have a Chris Batten HUT. However you mention above that the HDT is the sole unit holder in the HUT, therefore none of the profits can be distributed to you personally because you don’t own units in the HUT.
Also, if you are not receiving an income from an inverstment can you claim an expense? i.e. profits from HUT go to the HDT (not you) But you claim interest from the loan that you took out to purchase the units? (which are not actually in your name)
I hope this makes sense!!
Regards
Sebastian
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