G'day all,
My background.
I am 26 and I have a portfolio of 3 properties- Fairfield in brisbane and two in Toowoomba all of which are on LMR or mixed housing allotment 1000-1200m2 with house on them that I yield appoximately 9-10% in rental from. purchase price 1. $585,000 2. $273 000 3. $265,000. I complete the renovations myself and am handy at all renvations so I believe I have added significant value to each of them.
They are all postively gear by appoximatley $100-150 per week and renting strong.My plan is to increase the equity in these property and keep increasing the yeild by higher rental for approximately 5-6 years before developing all of them into higher density multi unti dwellings. I will continue to build my portfolio in this time.
My question revolves around tax and investment strategy.
I have bought all of these properties in mine and my partners name – we both ear approximately $75,000 and $85,000 a year. Should I be buying these properties in a company name or trust. My ultimate plan is too build the units and hold them all to live off the income streams BUT I do realise that some banks require presales etc to lend any finance to developers. So I may haveto sell some of these properties to satisfy that condition.
What is the best way to go about aquiring these properties to maximise tax advantages and other long term tax isses CGT etc.
Hi,
If you are building a complex of 5-6 units on these blocks of land and you have enough equity/cash to put into the project, then I douct that you will need presales to get finance. As long as there is a solid exit strategy at the end (i.e. either refinance to hold or sell some and refinance the rest or sll all of them) and you can either service the interest during construction or arrange to capiliae the interest during construction then you should be able to build and hold.
Also in my opinion a discretionary trust with a corporate trustee will almost always be the best structure for this, with probably a different trust for each property if you ultimately want to build multiple units on each property to hold. This will give better asset protection, be more tax effective and offer better estate planning than holding in your own name.
Buying in a company means you don't get the 50% CGT discount so this is not really the way to go.
Cheers,
Lukeluke86 wrote:Hi,
If you are building a complex of 5-6 units on these blocks of land and you have enough equity/cash to put into the project, then I douct that you will need presales to get finance. As long as there is a solid exit strategy at the end (i.e. either refinance to hold or sell some and refinance the rest or sll all of them) and you can either service the interest during construction or arrange to capiliae the interest during construction then you should be able to build and hold.Also in my opinion a discretionary trust with a corporate trustee will almost always be the best structure for this, with probably a different trust for each property if you ultimately want to build multiple units on each property to hold. This will give better asset protection, be more tax effective and offer better estate planning than holding in your own name.
Buying in a company means you don't get the 50% CGT discount so this is not really the way to go.
Cheers,
LukeThanks very much for your guidance Luke its much appreciated.
Put under trust is a safe way to go as far as asset protection goes.
just check up your land tax threshold, if you buy under your and your partners name, the land tax will be treated as differently as you hold under trust.
eg if the threshold is 200,000 then under your and your partner ( as family) you can have 200,000 + 200,000 = 400,000 limited before you reach to the threshold.
but if you buy under trust, then you only will have 200,000check with your accountant
scha9799 wrote:Put under trust is a safe way to go as far as asset protection goes.
just check up your land tax threshold, if you buy under your and your partners name, the land tax will be treated as differently as you hold under trust.
eg if the threshold is 200,000 then under your and your partner ( as family) you can have 200,000 + 200,000 = 400,000 limited before you reach to the threshold.
but if you buy under trust, then you only will have 200,000check with your accountant
No need to waste your accountants time- just check the Queensland osr web site.
E.g. For a property with a land value of $500k you will pay $500 in land tax if held in your own name (assuming you have already used up the threshhold on another property). If held in a trust you will pay $4000. So you will pay $3500 extra in land tax by holding in a trust, however a trust will offer far greater asset protection and be much more tax effective so you will probably end up on top by holding in a trust.
Also consider that each trust has a $350k land tax free threshold so if a property has a land value of less than $350k then you will be better off holding in a trust from a land tax perspective.
Cheers,
Lukeluke86 wrote:scha9799 wrote:Put under trust is a safe way to go as far as asset protection goes.
just check up your land tax threshold, if you buy under your and your partners name, the land tax will be treated as differently as you hold under trust.
eg if the threshold is 200,000 then under your and your partner ( as family) you can have 200,000 + 200,000 = 400,000 limited before you reach to the threshold.
but if you buy under trust, then you only will have 200,000check with your accountant
No need to waste your accountants time- just check the Queensland osr web site.
E.g. For a property with a land value of $500k you will pay $500 in land tax if held in your own name (assuming you have already used up the threshhold on another property). If held in a trust you will pay $4000. So you will pay $3500 extra in land tax by holding in a trust, however a trust will offer far greater asset protection and be much more tax effective so you will probably end up on top by holding in a trust.
Also consider that each trust has a $350k land tax free threshold so if a property has a land value of less than $350k then you will be better off holding in a trust from a land tax perspective.
Cheers,
LukeIs asset protection the main benifit derived from holding in a trust? Is that concerning banks attempting to forclose on a particular asset? Or is this a family memebr etc coming after asset?
I was hoping that there would be better tax benifits or overall CGT gains after I have fully realised the properties?
IS there much of a cost in setting up a trust?
Better asset protection in trusts and also a better tax structure.
If you held in your own name and you sold, all of the capital gains would be declared on your tax return and you would pay tax based on your marginal rate. But if you held in a discretionary trust you could distribute some to yourself, some to your wife, some to your parents, some to your adult children etc to gain the best tax outcome.
Cost to set up a trust varies but it is in the order of $1500 for an off the shelf trust (but can be more depending on what you want) and about $1000 per year in extra accountants fees to administer the trust and do the tax returns for the trustee and trust.
Cheers,
Lukediscretionary trusts provide asset protection because no person has any vested interest in the trust assets. that means if a beneficiary were to go bankrupt the creditors would be in the same position-no interst in the assets and they will generally be out of reach. but this depends on how it is all set up and how the trust transacts itself.
but the bank will always be able to get at properties which are mortgaged
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
As Terry has mentioned.
In saying this i would be starting to extract equity where possible out of the existing securities and then be looking to secure separate funding for the units etc from a new lenders irrespective of what entity you use to buy them in.
Many lenders wont touch multiple units on the same Title and if you intend to keep them long term you wouldnt want to strata them.
I still own a block of 24 units here in Brisbane on a single Title and have no intension to strata title them as the Council rates would jump overnight.Sure down the track if i decide to sell them then this is a consideration but being held in Trust you have more flexibility as to how you distribute the income and the potential capital gain.
Lenders will often tell you that they charge a higher rate or increased fees when buying in Trust but often this is merely an excuse and there are just as many lenders who dont. Half the battle of course is finding a lender who will fund a multi unit development.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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