Hi all,
We are looking at selling out PPR into a trust structure and have found an offering by Chan and Naylor which enables the rental income to be passed on to the spouse who is on the lower tax rate or the negative gearing to be claimed under the higher taxed individual. The trust has been developed specifically for property investment where the individual can claim negative gearing benefits in the short term with the view that the trust will become income producing over time. Two reasons we want to do this. Firstly, we intend to build a portfolio of property with development potential (i.e. LMR & splitter block sites primarily) renovate then rent out initially then at year 5 develop to cash flow positive situation. Most developed property will be hold long term unless the property is significantly negatively geared then that property will be sold. Secondly, we would also like to sell the property at current market prices in order to release some equity to be used to build a new PPR. Over time we intend to hold non development poperty in our names and development property in the trust. I understand that there are different land tax brackets in QLD and also costs associated with setting up a trust but we want to get the structure right upfront before we embark on this. Wondering what issues & other thoughts we would need to consider (e.g. financiers / structures, other taxes, costs, other state laws etc). Many thanks.
You need to consider the ATO's recent view on hybrid trusts:
https://www.propertyinvesting.com/forums/getting-technical/legal-accounting/4324208
You maybe able to negative gear in the trust if it is set up to be commercially viable – the negative gearing recipient will probably have to get all the capital gain without any flexibility. It will be operating like a unit trust until the units are redeemed.
If you are going to still live in the property then the ATO may not like this either – if it is owned by a unit trust. Have a look at TR 2002/18
http://law.ato.gov.au/atolaw/view.htm?locid=%27TXR/TR200218/NAT/ATO%27&PiT=99991231235958Also consider you will be losing the main residence CGT exemption and may have to pay more land tax where you otherwise wouldn't. You may still be able to have a main residence elsewhere and to use the 6 year abscence rule to claim the CGT exemption on this.
Also consider you will need to pay a market rent and as time goes by you will be positively geared and then have to pay tax on your own rent which you are basically paying yourself.
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
Terry has hit the nail on the head.
Whilst the PIT marketed by C & N as a special Trust in essence any Accountant can establish the same thing for you at half the price. The recent ATO changes have made the entity less appearling and the cost of a Unit Trust and acceptance by financiers have meant that most investors are looking to go down this route rather than the HDT option.
Stamp Duty will be payable on the Transfer Value in Qld although in most cases and subject to additional security can be added to the loan borrowings. Of course if you can justify the Transfer price this may vary from the Bank valuation.
Richard Taylor | Australia's leading private lender
so its possible to use a simple unit trust and still be entitled to structure for negative gearing?
Yes but only in the proportion of how the Units are held.
Richard Taylor | Australia's leading private lender
Do you have to pay land tax on DFT? is there any upper limit prior to paying tax?
I met Mr. Chan in the property expo and he was trying to explain to me about HDT… I thought that it is very complex and complicated.. and the costs ARE very expensive…
GOM
This will vary from State to State.
Yes they are expensive to establish and maintain and thats why the likes of C & N like them.
As i mentioned before a good property accountant can do the same thing but for half the cost.
Most good ones dont have the need to attend the Property Expo as they have too many clients as it is.
Richard Taylor | Australia's leading private lender
I purchased a Hybrid Trust and just before I settled property I did some research partcicularly ATO rulings one was very specific and I decided aginst it. I spke to th accountant from AFA who sold me the trust (they didn't tell me) and she said yes they were questionable but they now have a new one that is going to get a tax ruling making it okay. I phoned the ATO and as useul they were very specific and clear and they said that the advise ws wrong as you cant get a ruling for a product a ruling needs to be personal nd it is bsed on your particular circumstances
Personally I wouldn't touch them especially with strom clouds on the horizon and TO rulings.
I went for a Unit Trust in the end as the -ve gearing benefit was critcal to the succes of the investment.
can someone point me in the right direction on how a unit trust works for negative gearing purposes …. still much a novice regarding trusts thanks
The trust buys the house you own the shares in the trust the trust offer the property up as security for a mortgage that is taken out in your name. The house runs at a loss and you can offset this loss agints your personal income.
bardon wrote:The trust buys the house you own the shares in the trust the trust offer the property up as security for a mortgage that is taken out in your name. The house runs at a loss and you can offset this loss agints your personal income.
Sort of
The trustee buys the house in their capacity as trustee. The individual unit holders then borrow from a lender to buy the units. Income from rent etc is passed to the unit holders in accordance with the number of units owned. This income can be offset by the expense of interest used to acquire the units.
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
C&N are very good sales people.
I don't have much respect for people who use FEAR to sell their "copyrighted" SOLUTION.
There is nothing unique about their products, except the fee.Richard, thanks for your input.
What is the upper limit before land tax come in at NSW if purchasing property through DFT?
Thanks for everyones feedback. I like the idea of a unit trust but dont standard trusts have a 80 year time limit. Apparently the C&N trust is infinite? Are they costly to set up. Terry, are you aware of a good property accountant in Brisbane who could set this up. Much appreciated. Cheers
Terry may not now anyone but i can recommend my Accountant who is Steve Hodgkinson a partner with the Gold Business Group at Southport.
Steve is an expert on property structures and can be contacted on 5532 2855.
I have referred him to literally dozens of forum members over the years and they have always been extremely impressed with his service and level of knowledge.
Tell him i referred you as most good accountants are not taking on new clients.
Richard Taylor | Australia's leading private lender
I don't know any accountants in Brisbane but Richard's one sounds good. I do get the newsletters for Bantacs.com.au too and they know their stuff as well.
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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