Un-advice on structuring for CGT but also deductability?

hi NE

You can't have your cake and eat it too.

The owner of the property claims the costs including depreciation. So in a trust you take the income and deduct expenses and depreciation and if there is a profit this is then distributed. If there is a loss this is trapped and cannot be used to offset personal income. It can be rolled over until the trust makes a profit.

You can get around this by using a unit trust or a hybrid unit trust with the person borrowing to buy units in the trust. But the trusts have to be structured in a way so that there is no discretion on distributing income (or the ATO will not allow the deduction) so there is no real point in using these as they offer no asset protection either.

What you need is a way to get other income into the trust to offset the losses from the first property. This may be possible depending on your situation. eg if you are self employed it is easy.
another way, eg. For the existing properties it may be possible for your trust to rent them for say 10 years at a a cheap rent. The trust then onleases them at a higher rent to tenants and it can therefore make a profit (and reduce your income). This profit can then be used to offset the loss from the first property purchase.

hi NE

Most people don't use trusts all. They usually just purchase in their own names. There is not much you can do, no structure, which allows you to utilise someone elses loss.

You could gift or lend to the trust so that it has lower loans and more profit – but you will need the cash to do this. This is probably the best way to proceed if you can. Or just accumulate the losses.

I am not sure if income losses of a trust can be used to offset a capital gain. I think it may depend on the wording of the deed so that income can be reclassified, otherwise it probably wouldn't work like that. But, on the other hand, if you had an income loss and then a capital gain the loss would offset the gain. Best to ask an accountant this question.

If you are into property there should be a profit in there somewhere – otherwise there is no point in investing. So I suggest to do some sums and see how much of a loss there will be and how not claiming this loss will affect you. Buying in your own name could mean you can afford an extra property sooner for example.

ps. A good friend of mine purchased in his own name because of the negative gearing deductions. His wife wasn't working and he was on the highest tax bracket. I recommended a trust, but he bought in his own name. 2 years later the property doubled and he sold paying a huge amount of tax while his wife still had no income.

NE i think you might want to review the amendments to beneficiary distributions for children as it still has significant benefits.

Also what is say you and your wives marginal Tax rates will stay the same until the day you wish to sell the property.

One of the biggest benefits of using DFT's is the flexibility both now and into the future.

$3000 is bang on Terry (No small amount to be sneezed at depending on the number of children you have) and of course if you run a small business they can be paid a nominal amount for small jobs and then claim the Superanuation co-contribution through your SMSF.

My oldest 2 are 13 & 15 and have a decent Super amount to roll over to their first employer thanks to the Australian Government.