First PPR/IP – Structure Question

Was your friend qualified to give such advice?

If the main residence is owned by the lower income earner this may be good for tax purposes if the income will exceed the costs once you move out. But income is only one aspect to consider. What about estate planning, asset protection, CGT, land tax, serviceability, and ability to use various strategies?

If you transfer to a company or trust have you considered the stamp duty, new loans, discharge of mortgages etc? What about land tax going forward?

The building becomes part of the land so ownership of the land is what counts and not who is on the building contract – for tax etc.

Best to get some legal advice.

No I am asking if you have considered the points I made. I know nothing about your situation so could not recommend one way or the other.

Hi Valluvan,
As Terry has indicated, there are MANY more things to consider before making a call one way or another. As just one more example to think about, I could argue that living in your newly-built PPOR for 2 years, then SELLING it, might turn out to be a far better option than keeping it as an IP. But you would need to confirm that first with your favourite adviser, as my example may not work for you and your situation.

So, if you speak with your adviser, and they take you through the benefits of “Selling after 2 years” as opposed to renting it out, then the subject of “Whose name to buy it in” could change markedly too, depending on which path you choose to take.

In short, you need to know just which way you are planning to act in the future BEFORE making decisions NOW. If you change your course of action halfway through, that could lead to massive extra expense (just because you changed your mind). Far better to KNOW in advance which way is best – and that means having ALL questions answered before you make your first move.

It would be awful to find you have bought in the wrong entity, costing you heaps in CGT in years to come, just because you weren’t sure which way was best when you first started out. I hope that gives you pause…. I’d hate to see you jump in when you haven’t yet fully learned what you are jumping into. As Terry said, go get some legal advice, along with any other education on the subject you deem necessary.

Benny

“If you think education is expensive, try ignorance!”

I had a friend who bought a property years ago, in his own name because he wanted to get negative gearing benefits. He had a non working wife with no income and he was on the top tax bracket. The property jumped over night and he sold it within 2 years at double what he purchased it for. He was still on the top tax bracket and wore the full capital gain while his wife’s income was $0. But he probably saved $1000 or so on the negative gearing…

Terry I have had multiple conversation with people who have strategies that have a good reasoning in the wrong overall context (in my opinion) but they can only see what they can see.

very interesting answer, to confirm clearly the value in the FHOG/no CG on PPOR etc is the reasoning for the in name purchase? (among a few others tax etc, especially in NSW if they do not have a large portfolio)

estate planning meaning the will or legal document has to accompany the individuals structure otherwise it would have to be re done or amended, or be deemed void? is that what your implying?

Holy moly literally was not aware of how large the land tax difference is for Trust or company owned properties…I guess its more on the lower end it matters for NSW but will have to look at each state.

I know this is a debatable question but realistically do you think any Trust, PTY LTD or any other legal setup in Australia provides any real safety? and if so as it limits the exposure to the individual and allows that entity to go insolvent instead of the individual, then what in cases of an illegal action, as it appears to me there is no legal safeguard for any individual in Australia who has broken any level of law in any way, so why spend excess funds to try protect from such, instead have excess funds to do right.

therefore I came to the conclusion a simple PTY LTD, Family Trust is the only real need as you don’t have yearly ASIC fees for the Trust and still have different levels of benefit when it comes to earnings etc and levels of discretion. as a general point be interesting to hear your thoughts as I have not studied the law and hold no qualifications in any way in relation to its operations.

and in relations to Valluvan I highly suggest speaking with a professional like Terry as the question your asking is so much more complex than the information you have given and seeking professional advice from someone who can break it down sounds like it could deeply assist.

Yeah ok, so I guess you would be seeing that then for minimization of restructuring into personal names for some incentives as much as the other way.
Yes I am sure this happens without a doubt, hence why a will with wishes attached is what I have been told is as bulletproof as it gets.
I have heard debates if that individual breaks the law then Corporate bail piercing powers of the court can get power to look through any defense structure and can deem (even a shadow director) to seize assets, take control and shutdown what they want.
the most famous case is Alan bond, it even happened in WA not that long ago to a big judges son I believe.
Do you have any thoughts on this?

-Yes, but a Trust holding a company does not have the fees.

Yeah well once again literally been told the Wishes/will setup is as good as it gets by multiple lawyers what do you think is better?

I was of the understanding that if they deem you to be the owner they can seize, not if its simply setup in your name.

so your saying the Law has no legal way to take control of funds that were taken and funneled through legal setups to protect funds if it was done correctly?
I feel like given any circumstance if I am a governing body I would take measures to recoup any illegal losses and “try” to provide justice to the losers of that situation. this makes so many levels of ethical sense and if we do not do that, I feel that is creating an incentive for wrong behavior.
thoughts?

haha, so for a will avoid Assets falling into wrong hands, wouldn’t Asset protection be more worthwhile by the structures as you stated after?

Yes that one of the purposes and benefits of a Discretionary Trust that it creates another level of separation and protection.

I think you explain all of this really well, Terryw has anyone come out with an Australian book that explains this within the last 5 years as I know a lot of property books sell well.

but I would Imagine these conversations and points broken down in to easy to understand and double ended points (unbiased) would be so valuable if it was designed for the investor and almost a navigation of potential risks, I have yet to come across such a book.

Hence why your understanding of the field must be largely valuable to people planning for such as from what I understand that is your expertise?

I think that’s a great idea mate, the main point I personally find valuable from asset protection is LVR, Ownership setup and Cashflow In and building a safety net, in regards to the areas your talking about I think a clearly Australian book that breaks it into clear pieces would be very valuable so people can understand the levels of value of Wills, Trusts and company and even references to historical events, man that would be a great book.

Look forward to it Terryw.

In an ideal world you would hold each property under a separate trust, but you have to consider administration and fees. However in QLD it can work out cheaper due to the land tax savings.

Not sure what you mean by a piggy bank trust, but I sometimes recommend clients gift to the trustee of one trust and have the trustee of the second trust borrow this money – or even the individual borrow the money back. I call this trust the banking trust which may be the same thing.

Bucket companies – I often recommend, or structure so you could add one in later.