We are currently getting amongst it for our first IP’s would like to ask opinions on using discretionary or hybrid trusts as opposed to just buying and borrowing as individuals for the first couple of properties.
Has anyone had experience with going down the latter path then formimg a trust structure with their IP’s later? What were the costs etc and would it have been better in hindsight to start with a trust in the first place?
This is a question we are being asked by mortgage brokers when seeking pre approvals.
Finally, I should note we have limited savings to get started of around $20K and need to find out if it is a wise place to spend some of that at this stage.
Any feedback will be greatly appreciated.Australia just scored…….woo hoo. Trying hard….must concentrate.
Mark.
What are your Goals and what is your strategy for purchasing IP’s..
Are you looking for + or – ?
Just some things to consider before moving forward….
In my case..yes wsh i had used a HDT earlier
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorHello MArk
I believe that if you buy IPs under your names first and then move them into a trust later you will be up for both sales tax and CGT. Not great.
Cheers
ElkaWe’re hoping to try our hands at value adding for the first couple and then sell to with some equity behind us. The plan then is to
find or create +ve cashflow we can hold on to. This is chopping and changing weekly though.
I was curious about the tax implications of forming a trust later. My accountant suggested I do this from the get go.
So sales tax and CG tax?
Ta.Once you own a property, it is too late to transfer it to a trust. To get it in a trust, you must sell it to the trust. if you sell, then there is CGT and Stamp duty (not sales duty).
If you are planning on buying and selling, you might want to do one and then see how it goes.
I have seen many people with big plans who have formed trusts, then never used them. Things change, sometimes it is harder than expected, or family problems etc and no more are done.
On the otherhand, having a trust for the first one could save you thousands in tax, which should make up for the set up costs.
You will also have land tax and running costs.
Terryw
Discover Home Loans
Parramatta
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Ooooops sorry. Meant stamp duty. Thanks Terry.
Hi Winzer,
There is an interesting chapter regarding trusts, in Margaret Lomas latest book titled: The Truth About Positive Cash Flow Property.
Chapter 6 – To trust or not to trust -structures and strategies. Page 97.
An excellent read IMHO.
Regards, Sharon.Sharon
I’m wondering if I buy an IP in a discretionary trust and then sell 10years later and get a capital gain – is that gain distributed as I like to whichever beneficiary I choose? the same as normal income? or is the lump sum profit from a capital gain treated differently? if so, how?
Thanks
Toni
Toni, it would depend on the wording of the deed. Most allow for capital gains to be distributed to any beneficiary. The beneificary would then have to declare the capital gain in their income as a capital gain.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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 Terry.
Toni
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