Hi Guys,
My friend and I are joining forces with our savings in order to buy positive geared property and we are a little uncertain as to what would be the best structure.We will save 60k per annum as a team and we are not interested in getting an income from our investments until later down the track (7-10 years). So any profit at the end of the year will be re-invested back into the trust.
Our accountant has suggested a Unit Trust to hold the Property. The unit trust is to have 2 units, the 2 units being discretionary trusts (one in my name the other in my friends)
Can I please get some feed back as to what more I need to know before committing to this accounting strategy.
Thanks
What state is the trust going to be set up in and what state is the property?
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
The trust will be in Victoria, The property could be in any state,
Thanks for your help.
The trust will be in Victoria, The property could be in any state,
Thanks for your help.
we will be targeting property around 200k – 240k. We appreciate that our deposit will have to be higher to get it to positive and we plan to buy and hold as many of these properties as possible under that trust.
Unit trusts are generally good for two or more separate parties. Having the units owned by separate discretionary trusts should give each family separate control over their shares of the property.
So this is a good structure. You will have to watch out for land tax though. Using a trust may mean paying 1.6% land tax per year where you otherwise wouldn't.
Who is going to be trustee?
What happens if one of you die? Divorce? go bankrupt? Get pregnant? Go bald?
So many possibilities that could impact on what you will be doing – what if he wants to sell and you don't? What if he wants to sell his units (or unit) to someone you don't know? Does he need your permission? Is there stamp duty on the sale of units?
Might be better to have a larger number of units too. If you had 50 units each instead of 1 then it may be easier to bring in another partner by selling 25 units.
Who will be the appointor of your discretionary trusts?
Who is going to guarantee the loans?The initial funds – will it be lent to the trust or gifted? Who will gift or lend? You or your discretioanry trust?
etc
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,
You have been a great help!
Rusty
Heh i am concerned now.
I checked my DFT deeds and there is no mention what happens when i go grey.
Think i might have to get Terry to reword them !!!!!
Rusty alway best to plan for ever eventuality.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Its when you go senile – or die that counts!
You need to plan for an attorney to operate in your place if you go into a coma or disappear or go crazy. The trust must go on. But it is a bit tricky with a trust as a trustee cannot delegate their powers.
When you die you go to heaven but the trust continues. So control of the trust must be passed on. If you control the appointor role in the trust then you need to make sure this role is passed on. Ideally the deed will say who the next appointors will be. If it doesn't then maybe it could be the legal personal representative of your estate – if you die intestate or someone you don't like gets control (exspouse?) then they could control the trust. There are many reasons why the executor you named in your will may not be the executor of the will (the role could be challenged, refused, death, coma, crazy, disappear etc).
This is another reason why a company is a good idea as trustee – when you die the title doesnt need to be changed. If you were trustee then the title for all property owned would need to be changed to the new trustee – which could mean stamp duty in NSW depending on the wording in the deed. A major hassle anyway.
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
This is another reason why a company is a good idea as trustee. – I would like to explore this further
What would be the diffirence of the follow 2 scenarios?
A) Unit Trust holds the assests and the Ownership of the units are Discretionary trusts
Unit Trust holds the assests and the Ownership of the units are CompaniesHeaps – here is just a few
Taxation – trust income retains its character. So if a unit trust made a capital gain it could flow through to the individual as a capital gain if the units are owned by a DT. If the units are owned by a Company then the character would change to that of divdend.
companies also do not get the 50% CGT discount
Asset Protection
assets owned by a discretionary trust generally don't form part of someone's estate if they are bankrupted. If a person owned the shares then these shares would – and could fall into the hands of creditor so any profit by the unit trust could go to the creditors.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
Hi,
hope you don't mind me joining the conversation, please correct me if I'm wrong, but don't you get the 50%CGT discount in the company as a trustee scenario if you channel the profits to an individual – such as yourself / spouse?
Thanks.
Bob1 wrote:Hi,hope you don't mind me joining the conversation, please correct me if I'm wrong, but don't you get the 50%CGT discount in the company as a trustee scenario if you channel the profits to an individual – such as yourself / spouse?
Thanks.
Not so.
The trustee doesn't matter because the income flows through to the individual who pays the tax.
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
sorry – I mean when the income from the sale flows to the individual, if the entire amount goes to one person (yourself or spouse) don't they get the 50% CGT discount?
Thanks.
Hi Bob
Are you asking if the CG from the sale of 1 property could be streamed to, say, 2 people and that each of those people can get the 50% CGT discount.
I think the answer is yes. Any accountants out there?
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
Terryw wrote:Hi BobAre you asking if the CG from the sale of 1 property could be streamed to, say, 2 people and that each of those people can get the 50% CGT discount.
I think the answer is yes. Any accountants out there?
The short answer is yes. If a discretionary trust makes a capital gain and distributes to one or more individuals, the individual taxpayers qualify for the 50% discount.
If it is distributed to a company, the company pays tax on the full capital gain (ie – no discount).
As Terry said, it doesn't matter if the trustee of the trust is an individual or a company. It's the beneficiary that determines whether the discount applies or not.
thanks Dan
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
Hi Terryw & Dan42,
thank you for that.
Still learning – but it's making more sense now.
Unit Trust holds the assests and the Ownership of the units are Companies
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