Hi all,
Here's a tricky one – I recently set up a trust for purchasing property, but I wanted to know if anyone knew if it were at all possible to divert rental income and expenses from properties that I currently own in my personal name into the trust? The titles of the properties in question are in my personal name, but the loans will soon be in the name of the trust. Can I divert the rental income from these properties into the trust? What about the capital gains when I eventually sell?
I am assuming you are referring to a Unit or HDT rather than DFT.
The simple answer is NO when the property is already owned by you personally.
I think your understanding of how a loan in regards to a Trust works is mistaken as you cannot merely change the name on the loan into Trust unless the property is sold to the Trust which may trigger both a capital gain and stamp duty.
Careful planning with your mortgage broker will alleviate this problem in the future.
Richard Taylor | Australia's leading private lender
I didn't think so – just thought I'd ask just in case
And I am talking about a DFT…
Thanks heaps for your input Richard!
Using a DFT you are unable to claim even at year end any of the negative gearing losses.
As it is your first property I am assuming that you have set it up with a Personal Trustee rather than a Corporate Trustee.
Many lenders will not accept loans with a Trust involved and those that do often wish to charge an upftont legal fee to read the Trust Deed and do not allow the loan to be considered under the Professional package meaning a higher rate of interest.
Get your mortgage broker to work out a long term strategy so that you do not end up paying over the odds for something which is relatively simple.
Richard Taylor | Australia's leading private lender
Thanks Richard, these properties are positively geared, so the negative gearing thing isn't an issue – and the bank has everyhting under control re the lending, I am still getting a professional package with a low interest rate – I insisted on it.
You are right about the perusal fee though – $350!! But after already paying for the trust, what choice did I have…
Thanks again
Wow $350 i would have inisted they waive that also.
If the properties are positvely geared and you are also working might be time to be switching to a Corporate Trustee rather than a Personal Trustee.
Richard Taylor | Australia's leading private lender
I already managed to have them agree to waive almost $10,000 in LMI, so I won't push my luck…
I'm considering a corp trustee, but don't need it yet – maybe down the track. Also, no 50% capital gains tax discount with a corporate trustee…
Also, no 50% capital gains tax discount with a corporate trustee… If your current Accountant is telling you this I would be changing Accountants.
Richard Taylor | Australia's leading private lender
Sorry, I meant corporate beneficiary (or if the capital gain is distributed to the corp beneficiary) – 7.33pm is obviously too late for my brain to function properly…
mpertile wrote:Sorry, I meant corporate beneficiary (or if the capital gain is distributed to the corp beneficiary) – 7.33pm is obviously too late for my brain to function properly…The corporate trustee is for risk managment reasons – as individual trustee you can be sued if anyone gets injured on the properties – somtimes public liability insurance not enough and the insurance companies don't alway like paying out – the corporate trustee is a $2 company and limits risk – can have liability as director though only if negligence as a director can be proven.
If your accountant knows the game you distribute capital gains to yourselves – lowest rate of tax if property held longer than 12 months. Corporate beneficiries are the old way – watch the Div 7A rules. Investigate Limited Parnerships as the 30% beneficiary and lender back to the trust.
Get wholistic advice not just tax advice!
There is a way to divert profits into a trust for existing properties and that is for the trust to rent them from you at a lower rent, in exchange for various commercial reasons, and then the trust can sublease the properties at a higher rate. You have to be careful to do everything at a commercially realistic rate though.
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
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