Forum Replies Created
Sorry Terry but you are in error, no individual can be a sole trustee since 1999 when the SLAA Act No 3 was itroduced.
If the trustees are persons there must be a minimum of two.
You have highlighted the problems of non corporate trustees – do not use personal trustees for a SMSF – EVER.
In the case you mention had the trustee been a company it would have been business as usual for the remaining trustee who could have continued.
Another thing Terry stop scare mongering – I have been establishong SMSF’s since 1978 so all these problems can be overcome if dealt with intelligently – except death and that requires estate planning.
It doesnt matter how old you get it death s alway a surprise!
So plan now and stop worrying cos its going to happen and leave enough cash for a good wake and send off!Binding Death Benefit Nominations were introduced about 1998 and yes like a valid will they require two independent adult witnesses.
Now lets enjoy life while we still can!
Regards to ALL
Anthony K
reagrds to All
Anthony KHey Brizza
Do not buy any property in your own name unles you want to leave it unprotected from crditors and lawyers who want to screw you over. The other reason is if you buy in your own name you can NEVER transfer it into your SMSF because its poisoned.
Trusts are can be pretty simple thats why the Smart Money uses them they ar also cheap from $150 to $500.00 and you dont need to pay NSW Stamp Duty (the last time I did was in 1996 when it was $200) now it’s $500, so dont give your money to the NSW Govt.
You should use a company trustee but you only pay for it once and use it for ever. If you can’t afford the annual fdee $236.00 then you wil need help with proeprty investing. It never cease to amaze me that many peop[le worry about a few hundred dollas for a proper structure but dont flinch when the Govt. screws them for outrageous Stamp Duty costs.
Thats my rant for now.
Regards
Anthony KHi Benny
Do not use either: a company can be OK but only if you buy land/property as trading stock, develop and sell (not hold) and want to pay a flat 30% tax from the first dollar but this is only the PRIMARY TAX, there are more tax nasties coming later.
The best vehicle now IF you are a resident is a SMSF
The amateurs’ will tell you, you can’t borrow to improve the acquirable asset.
But they are incorrect I don’t know any SMSF specialists in QLD but there are many in NSW including me.
Rememeber your purchase structure muste be in place before you enter into the purchase contract.
Regards
Anthony KHi All
This is a mixture.
Repairs and renos are deductible particularly if documenmted as “expenses incurred for preparation of the property for rental purposes”
Painting the interior of the house OK as above
Installing two split system aircons NO this is an iprovement and is added to CGT cost based and depreciated over time you need a depreciation schedule before your rent
Replace window furnishings is this curtains/blinds? – if so OK it goes into furnishings and is depreciated
Anthony KHi All
Redwood and Richard are correct,
Q: The issues are 1. who would buy property in a compsny?
A: A dumb person because you lose the 50% CGT discount available to individuls, partnerships and trusts (inxl SMSF at 33%)
Rule 1 NEVER buy any growth asset in a company.
Next Q
2. is the property commercial or used in a business carried on by a SMSF Member or other related party?
A: Yes pass and proceed on arms length terms (Valuation and SISA S109 and S65)
A. NO. Breach S66 and go to jail less a large wad ofATO cash penalties.
Whats your next problem?
Regards
AnthonyKHi Waz and All
Re: Unit Trusts and Land Tax
If you have the correct documents you can gain the land tax Threshold in NSW and in other states as they all have similar rules.
It is based on facts not opinions as the recent case below illustrates. Remember also that land tax paid under state law is a deuctible expense unedr federal law so it gets discounted.
In a recent decision (Chief Commissioner of State Revenue v. Sayden Pty Ltd ATF Griffin Property Unit Trust (RD) [2012] NSWADTAP 14) the Appeal Panel of the NSW Administrative Decisions Tribunal held that a clause inserted into a unit trust deed seeking to make the trust a fixed trust for land tax purposes (a "fixed trust clause") by mirroring the relevant section (section 3A(3B)) in the Land Tax Management Act 1956 (NSW) was ineffective. This was because there were a number of other clauses in the trust deed that were not amended and were held to be inconsistent with the trust being a fixed trust. This is despite the fact that the relevant fixed trust clause purported to override everything else in the trust deed.
Another benefit of buying this way is that you allow your SMSF to acquire units in the trust later you can use SMSF money to use the trust for other properties.
You cannot do this if it is in your personal names.
You can also use SMSF or UT borrowing to buy units if it is set up correctly – we have been doing this for clients for over 20 years without problems.
It all depends on the set up – remember the ATO has a current ruling ID 2002/388 that allows you to live in a property owned by a unit trust – SMSF structure provided you pay market rental. We have correspondence from the ATO in 2003 and 2008 which confirms their ruling.
Planning and structure can determine whether you reach your goals.
Regards to ALL
Anthony
Hi MkBonline
You need to understand the definition of a "Common Law Employee" and make sure that you DONT have one of those and have a written binding contract which is for a “desired outcome” and which includes several other important provisions.
Then you can make a move, – and don't let the lawyers fool you and say Its Too Hard and expensive – it ain't.
I had a client who did what you want to do for 20 years and then sold the business for $19M.
Now I am going to upset some people but thats how it is sometimes. Lawyers tell you it's illegal to give legal advice if your not a lawyer – that is simply not true.
The truth is this: – IT IS ONLY ILLEGAL IF YOU CHARGE FOR IT !
You see lawyers are all about MONEY and CONTROL of their turf and YOU.
Not about You and Your wants and needs.
Best wishes to you all.
Hi Peanut/Catalyst and All
Do not listen to the ATO BS
The last case on this was in 1987 which the ATO LOST !!!!!
Go read Janmor Nominees – this case is still THE LAW.
FEDERAL COURT OF AUSTRALIA
Re: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
And: JANMOR NOMINEES PTY. LTD. (AS TRUSTEE OF THE J. REDMAN FAMILY TRUST)
Nos. VG386 and VG387 of 1986
There are also some ATO Rulings which are helpful.
If you cant find the case email me and I will send you a PDF copy.
Anthony
Hi Bennyhub
Do not ever – never put you properties into a company unless you are a developer and you buy land as trading stock for improvement and resale.
You immediately lose the 50% CGT discount.
You should use your company as a trustee for a Fixed Unit Trust and also retain the ability to legally move your property to a SMSF later.
If you are going to make a collection you might use several trusts and share them with your partner to get extra land tax savings. Have fun
Anthony K
Hi Chris11 and All,
This demonstrates what we should all know.
It's paramount to PLAN CAREFULLY before you make a decision and/or sign anything.
I NSW and QLD my understanding is the duty liability arises at the date the contract is signed, not the date of settlement.
Have a look at QLD Duty Ruling DA016.1.1 which supports this view.
Another aspect is whether there are two separate contracts, one for the land and another with the builder?
If there is a single contract for the whole lot then I guess duty is payable at $496,00 ($15,785).
However there are two other factors, is it for a home for for an investment property?
A home gets a $15,000 grant (net duty $785), an investment property gets zero.
I think you need to think carefully Chris! and speak to QLD OSR before you finalise your position.
Good Luck Chris11
Regards to All
Anthony K
Hi Darryl, Terry and All
No, it is not against the law to provide legal advice.
It is only illegal to charge a fee for doing so.
Anyone can give as much free advice as they choose. The legal profession act in NSW and other states only proscribes a non legal person charging a fee,
This is because lawyers are all mostly about money, and what they want and need is a protected environment in which to operate. Also passing the buck to an insurance company and making others responsible for your mistakes tends to make you care less about how you perform and about outcomes for clients.
I think if more lawyers were into giving free advice the prices would tend to reduce and a better system would be where they provide a binding quotation rather than the open ended Costs Agreement that has no upper costs limits.
In my view this is a long overdue consumer protection that should be initiated.
Don't forget Darryl we are all allowed an opinion, that's why we come here to share them with others – for free.
Regards to All
Anthony K
.
Hi Terry & All
Terry I did not mention SMSF at all unless you can point it out for me?
We have been establishing trusts of all kinds since 1978 including some we have designed ourselves such as our Fintel Group Pty. Ltd. TEBL Trust™ in 2004 and a joint SMSF-Unit Trust in a single document in 1995. Our TEBL Trust™ can produce after tax profit results around 28% higher than a standard discretionary trust and is designed to reduce debt more rapidly than alternate methods. Remember also that all lawyers subscribe to the law industry standard precedent document computer library, so just because they can produce a deed It won’t guarantee that it is correct for your situation.
Accountants & Financial Advice Exceptions
The details on Accountants and exceptions regarding financial advice are contained in Regulation 7.1.29 of the Corporations Regulations and cover companies like A4Companies. Accountants are specifically covered under Reg. 7.1.29A but this is changing on 1st July 2013 when the FOFA comes into force.
Unfortunately being “qualified” does not always prove much, the fact you managed to scrape by in an examination 20 years ago does not provide much comfort to a client and nor do Darryl’s assertions that “lawyers” are some sort of gods and are infallible. The constant references to Professional Indemnity is designed to allay fears and pretend that whatever happens it will not cost you money. If you have not had the experience of taking on a law firm in court in a negligence case, you have no idea of what is involved. It costs a lot more than money there is also skin and emotion involved.
The old property adage of “caveat emptor” could be well applied to advice whether it is from a “professional” or any other person. Paper certificates on the office walls are not a substitute for advice based on well researched current material applied to an individuals personal situation. When I held a FP licence from 1991 to 2004 it was incumbent to “know your client” this is a condition that should be applied to all advisors. When I learned my “trade” (and I am still learning) it was on the basis that “a problem well stated, is a problem half solved” this aligns accurately with “know your client”.
Regards to All
Anthony K
Anthony K
Hi ystress and All
I agree setting up more than one fund is more expensive, I prefer this idea.
Use a single SMSF and bare Trust and have two separate loans.
This means that you only need two companies, a SPTC and a standard co. for the holding trust.
Asic fees on setup $433.00 each, and on Annual Review $43.00 + $230.
Now you are all going to tell me that it cannot be done, but:
Walter Bagehot, a British businessman, essayist and journalist, said:
“a great pleasure in life is doing what people say you cannot do”
Of course my fees for advising and explaining how to execute this will be added to the set up costs but you will save money on the extra set up costs and compliance costs every year.
How you proceed is up to you ystress.
On a different tack, here’s part of an article I wrote 2 years back for beginner home buyers perhaps some forum followers would like to read the rest?
YOUR FIRST 141 HOME LOAN PAYMENTS ™ (Part 1) November 2011.
Why such a strange title ?
Because it highlights one of the most fundamental and important pieces of information that the majority of home buyers never discover or even think about. So what is it ? and why is it such a secret ?.
It's this.
Depending on the interest rate and your home loan borrowing term, it's the point at which the monthly repayments you have made are equal to the loan amount you originally borrowed.
For borrowers who have a 25 year principal and interest mortgage, it occurs about the time they have made 141 loan re-payments, that is, it occurs at about eleven years and nine months (141 months). But even though this is an interesting fact it is not the most important fact about your home loan costs.
The real killer fact is this:
Every payment you make after number 141 is a financial loss for you, because you still have 159 payments to make on a 25 year loan term. This allows us to calculate your loan loss ratio as follows. Divide the number of remaining payments by those already made, i.e. 159/141 = 1.13. This means that your home loan costs you 213% times the loan amount borrowed. It is also the reason that for most home buyers the banks have them in their power for most of their working life including the time spent saving your home deposit.
Regards to All
Anthony K
Hi All
Yes,
Darryl is right
always go first to a lawyer as they have insurance to protect your position,
They tell you they are experts but they can still get it wrong, and
Not many law firms have experience in depth in SMSF law because 99% only just discovered them.
Ask John Symonds about lawyers, He is having to sue Gadens for $11M,
because they apparently caused a F.Up with his work and allegedly cost him that.
Isn't that a comforting thought?
When they are wrong you have to sue them, if they were honorable men why don't they just pay up?
No if they get it wrong you must fight their PI insurance company as lawyers must not admit liability.
Promise every thing and admit nothing.
Great system and we all know you can trust a lawyer.
Am I unfair ?
No, just been disappointed.
Anthony
Hi Aiden and All
You have three basic queries,
2 Objective
1 Subjective
The 1st two
1. Don’t buy in own name/s
2. Buy land and build
3. subjective: Positive v Negative
Depends on you financial position to decide which is best for You
A FREE TIP
Your personal exit strategy is predicated on your entry decisions – it’s your only time to do it correctly for you.
If you want know why – respond here and I will reply.
Regards
Anthony K
Regards to All
Anthony K
Hi Lila 77 and All,
I see you are past retirement Lila (77) or your still a young filly?
Congratulations of your investment progress,
Don't know where your $10K has gone Lila but here are some points to note.
1. Don't get all your loan money from one lender, Why?
Because all your assets are tied up and if you get into bother they can just grab all you have.
You have no room to move or negotiate. you are better off separating your loans and do not give cross collateral security.
Also avoid personal guarantees whenever possible.
2. Your IO account for the IP is costing you money, Why?
Because if you put that cash into your home IO it saves you interest + personal tax, and while you will not reduce interest on your IP loan the interest is deductible.
You see Lilla it is not necessarily smart to use the same financial strategy for two very different situations.
Regards to All
Anthony K
Hi crj and All
You are spot on crj and the ATO will just send an assessment with penalties and the Obeids’ will have to fight them in court and try to prove they do not owe the tax.
They are all up the proverbial S*** creek.
Do you remember Offset Alpine ?
The 3 major players involved were Graham Richardson, Rene Rivkin and Trevor Kennedy who each got a bill for $2M plus.
Go to Wikipedia and look for Offset Alpine for the whole story.
In any case the trust loan scam was finished a couple of years back when the new Div 7A legislation with large teeth was passed.
This was to combat the trust and "bucket" company tax scam.
How does it work?
A discretionary trust is established for the family members and includes a company as a beneficiary and the usual classes of other un-named trust objects (beneficiaries).
The Strategy
After all the trust income is distributed though the family, anything left goes into the bucket. That is the company which declares the income and pays 30% tax. All this is fine so far, but the Director then make loans to the shareholders (same folk) at no interest or security and the loans were never documented or repaid. The effect is to avoid tax on a dividend distribution which would occur if the shareholders were to be paid a fully franked dividend. So they do not pay the personal tax due on the dividend. This is simply just tax evasion which is a criminal offence and can earn you a free room in jail as well as large financial sanctions. It’s what stupid people do hoping they wont get caught. (the 11th Commandment)
About Trusts.
Many people and politicians think that a Discretionary Trust is a tax saving device, IT’S NOT: it is an income splitting and asset protection device provided it is properly established for particular situations. You should not just grab a cheap document from a DIY web site.
Income splitting works because each adult taxpayer gets a tax free threshold (TFT), so if you have say six family members you have six TFT and at $18,200 each that’s $109200 tax free.
Then you dump the balance say $100K into the bucket company and pay 30% ($30,000) and you have $70K cash left over after paying $30,000 on total income of $209,200 which is an average tax rate of 14.34%. Pretty good don’t you think?
However any income retained in the trust is taxed at the top personal marginal rate 45%.
The Taxpayers Actual Position Div 7A
To avoid severe penalties the bucket company Directors must document the loans with statutory interest, current year rate 7.05% and the loans must be repaid within 7 years.
Property Investment Opportunities from Div 7A
Many people may think that the new laws have destroyed an opportunity but I don’t agree.
Properly used Div 7A offers some interesting ways to invest in property with low interest loans and provided the loan is used to derive income and capital gains Div 7A is a useful panning tool.
.
But I will save that for another day.
Regards to All
Anthony K
Hi Tony Zorro and All
What a great name you have Tony,
My interest is through property structuring with heavy emphasis on SMSF involvement and been establishing/advising on them since 1978.
As you know Tony there is a view that leasehold is an inferior product, whether its motels, hotels or Child care many prefer the freehold but that's not my view.
My reasoning is repaying debt is after tax which crushes your cash flow from acquisition date when debt reduction should be the major goal.
My view is that leasehold and freehold are best tackled separately like this.
1. When doing your due diligence do get the accounts BUT ASK for Bank Statements for 3 years.
If they don't want to supply them there is a reason so go to the next business..
2. Make sure you do lots of calc's on the business cash flows and your cost estimates before you take the plunge
Remember Its the business which makes the money and you can lease the premises fro say 3+3+3 or 5+5 with an option to buy the freehold when your leasehold debt is paid out or reduced.
We a have a special structure call a TEBL (Tax Effective Business Loan) Trust which can retain more after tax profit so you can reduce debt faster and pay less interest. The higher the profit the more you save, 15% to 25% extra cash after tax.
Then you can tackle the freehold with a clean slate and better cash flow.
I would welcome some discussion on this idea.
Regards to All
Anthony K
Hi All
Just noticed a small typo when I checked my previous notes on 3/03/2013 reproduced below:.
You would need to study S71 of Sub-division C of SISA, – In House Assets, and the anti-avoidance provisions in that section, also
SISR 13.3A, SISR 13.22C and D
SISA Sections
S52, S62, S65, S70, S109 and
IT IS HERE
SISA S173, Special Income and
ITAA 1936 S102 Public Trading Trust
AND SHOULD BE AS BELOW
ITAA 1936 S173, Special Income and
ITAA 1936 S102 Public Trading Trust
Will try to better in future
Regards to All
Anthony K
Hi again All
Sorry I have been away and not contributing. Just busy. here are some ideas and comments for your forum from Anthony K.
Response to Property Investors
Problem = Property Development under SMSF.
Response 1. JHAC with $50K in SMSF – Thinking of Syndicate for the development.
Here are my suggestions and comments.
Suggestion 1. Think about getting 3 SMSF partners with $50K or more for a single SMSF syndicate with a Corporate Trustee. With 4 Directors and shareholders correctly arranged.
Response 4.
Jacqui, a SMSF cant borrow to renovate but use own cash
Yes but the correct term is: “can repair or pay expenses of acquiring the asset but not to “improve” the Acquirable Asset (AA)
S67A deals with a single AA,
S67B deals with more than one AA’s which are identical like a tranches of shares of the same class in the same company.
S67B cannot apply to a number of properties which are SIMILAR such as units in the same block unless they are on one title when they come under S67A.
If you want to buy a number of units whether in a single block or more than one, then each is a single acquirable asset under S67A with a separate loan and Bare trust documentation.
Response 5. Terry’s cryptic “It could be possible”13.22C”
Note there are 4 sub-sections in SIS Regulation 13.3A which apply, and they are:
13.22A Definitions
13.22B, only applies to events prior to 7:30 12th May 1998
13.22C which applies only to events after 28th June 2000
and 13.22D.sets out the various events which cause a SMSF breach.
10 Terry W SMSF cant lend to associate or member S71 SISA
SMSF lending to members or related persons or similar other access is prohibited under S65 of SISA.
There are 2 sections in SISA are numbered S71.
S71 of Sub-division C of SISA, – In House Assets and
S71 of Sub-division D of SISA, – the Transitional Provisions (Grandfathering) which applied to a SMSF + Unit Trust established before 7:30 12th May 1998 and ended on 30th June 2009.
However we still use 1997 SMSF + Unit Trusts where there use and circumstances can be appropriate.
Response 12 Terry W
Your smsf can own units in a unit trust or shares in a company. see SIS reg 13.22C.
But any property owned by the trustee of that trust cannot be mortgaged or charged in anyway. –
You would need to study S71 of Sub-division C of SISA, – In House Assets, and the anti-avoidance provisions in that section, also
SISR 13.3A, SISR 13.22C and D
SISA Sections
S52, S62, S65, S70, S109 and
SISA S173, Special Income and
ITAA 1936 S102 Public Trading Trust
Response 14. Wilko, a trustee of a SMSF cannot borrow money, s67.
But s67A allows a trustee to borrow money (wtf?) by introducing an exception. This is to acquire a single acquireable asset.
(incidently you know when legislation has been amended when the numbering jumps out of sync and letters have been inserted such as s67 then s67A s67B etc?
Wilko – There are actually 8 major subsections in S67 of SISA.
S67(1) Prohibits Borrowing
S67(2),(3) are old exceptions from 1993
S67(4A) was introduced in Sept 2007 as the new SMSF Borrowing section and was amended in June/July 2010 when it became S67A for a single asset and S67B for multiple identical assets.
Also Terry:
A JV is a Joint Venture but a JV is neither the same as a Partnership or Tenants In Common, they are each separate and distinct in establishment, operation and in nature and liabilities.
Most importantly only “Tenants In Common” is mentioned and sanctioned in SISA.
Anthony K @ A4Companies
