Forum Replies Created
Uuumm,
Some pretty harsh comments being made by Lisa in regard to Dale here.
I think most people of average intellegence would have assumed that some of the deductions listed are possibilities depending on your business and exployment circumstances etc. That’s certainly how I interpreted it. But for Lisa to say that the whole of Trust Magic is rubbish and to avoid Dale like the plague because she is unsure of a few deductions listed makes me wonder about the motives behind her post. And as Mike suggested Dale does try to occasionally bring some humour into his discussions and writings. God forbid if an accountant actually tried to make a topic which most people avoid somewhat interesting and entertaining.
I have been a client of Dale’s for quite awhile now and he has certainly never been agressive with our tax returns but I can assure you he makes sure we don’t miss out on what we are “legally” able to claim. He is far more thorough and makes sure we can substantiate our claims much more so than any previous accountants we have ever used over the last 25 or so years.
Lisa as Mike suggested can you please list “specific” things that you disagree with and provide supporting references to court rulings and legislation etc that supports your claims. Because I can tell you now from my experience with Dale he will have no trouble supporting anything he says with the relevant legislation and court rulings etc.
Cheers – Gordon
Once you have contributed capital (e.g. gifted money to a non fixed trust) any return of such capital to any of the beneficiaries will result in a CGT Event E4. Proceed with caution.That is basically what I had understood to be the case. Given that only my wife has to contend with business risk we ensure that she has no loans to the trust. However given that I’m exposed to very minimal risk (no business risk for sure) I have been comfortable having loans to the trust against my name.
Not perfect I know but with all these things there are tradeoffs no matter which path you take.
Thanks again for the info.
Cheers – Gordon
Hi gang,
This issue was discussed in detail on the Sommersoft forum which Terry has pasted some info from.
It seems that either a cheque or a $10 note can be used. Either way is not without its drawbacks.
From memory I recall it being suggested that regardless of how the trust was settled once assets are purchased by the trust and in particular real estate the issues associated with the loss of the settled sum is not as critical.
If the trust deed is stamped and property is subsequently purchased in it I imagine it would be difficult for someone to try to invalidate the trust even if the $10 note went missing or the bank account containg the deposited cheque was accidentally overdrawn at some stage.
As usual I would be interested in further views.
Cheers – Gordon
Hi Cata,
If my understanding is correct once I gift funds to the trust I would have to pay tax on these funds should I require them to be permanently returned to me at some time in the future. Of course I suppose the trust could loan the funds back to me as an interest free loan. This is providing that the Gov’t doesn’t legislate later down the track to enforce formal loan arrangements. Due to my concerns about this I prefer to loan rather than gift. My risk as opposed to my wife is very low so I feel comfortable having loans to the trust against my name.
Cata, I would appreciate your views on this.
Cheers – Gordon
Hi Cata,
Thanks for providing further food for thought.
Although I’m only a layperson I find trusts interesting beasts.
I personally don’t like gifing funds to a trust. Fortunately my wife is the risk person and I have very minimal exposure to the usual risks. Hence loans to the trust are in my name.
The challenge with owning property in one’s own name whilst trying to protect it using a trust structure seems to be how to deal with its ongoing capital appreciation.
To date we haven’t done anything fancy with our Disc trust and HDT. We do have one investment property still exposed to some business risk as it was purchased in my wife’s name prior to setting up our trusts. To date all we have done is keep the original loan as interest only and have established a LOC on subsequent growth with these funds being used to partially fund purchase of an investment property by the HDT. However no doubt more could be done to protect this asset with some of the strategies mentioned as possibilities.
Regards – Gordon
Hi gang,
Over time I have heard of a few strategies for protecting the family home using trust structures. I’m going from memory here so my recollection and understanding may possibly be incorrect. OF course none of this is advice.
1. Use your PPOR as security for purchase of IP in trust. Basically just uses cross collaterisation which normally most experienced investors would avoid but it is useful in this case.
2. Borrow against PPOR and gift funds to trust. The trust takes a registered mortgage over the PPOR and loans the funds back to PPOR owner.
3. PPOR purchased in own name but funds borrowed from trust. The trust borrows funds from bank using PPOR as security. Bank has 1st mortgage and trust has 2nd mortgage over PPOR.
In response to a previous suggestion of using a standard discretionary trust for negative gearing I’m guessing that some of the above ideas could also be used except instead of purchasing a PPOR it would be an IP. But that idea only just now popped into my head and I haven’t really thought much about it.
I would be interested in others ideas.
Cheers – Gordon
Hi Terry,
I think it was some stupid recent legislation that I stumbled upon. I may be totally wrong on this but when I get the chance I will see if I can locate the article and reread it.
Cheers – Gordon
Hi Terry,
Great information from you as usual.
I noted you mentioned the subsequent setting up of a Coy or another trust to distribute to.
The Coy is no problem. However I may be wrong or misunderstood but awhile back I thought I read somewhere that problems can arise if you try to distribute to another trust with a creation date later than the original one. In other words you may be able to distribute from the new trust to the old but not the other way round.
Again I may be wrong so anyone else here please correct me if this is not the case.
Cheers – Gordon
Hi,
Whether its Quicken or Money its probably best to use scheduled payments (and manually adjust if need be) to deal with principal and interest etc as the calculations will often be incorrect and/or each bank may use slight variations. Its still very easy and takes very little time.
Cheers – Gordon
Hi,
My understanding is that with most standard trust deeds this should be no problem. It is easy for this to be done.
As mentioned in another post I just responded to be aware of restrictions that can arise if you have losses in the trust and want to carry these forward. If this situation arises you will have to make a Family Trust election which can result in the exclusion of benificiaries other than the “immediate” family group. So from memory I think this would exclude your aunt. However your parents and children should still be included in the family group. Or should I correctly state that you can still distribute to individuals outside this family group but will be hit with the highest tax rate. So you just wouldn’t do it in reality.
Cheers – Gordon
Hi,
If you haven’t already setup the trust please consider opting for a Hybrid Discretionary trust. You still have all the benefits of a standard discretionary trust but also huge extra benefits of being able to claim any losses against your personal income and other nice benefits. And if things are done correctly the asset protection is not adversely impacted.
If you already have a standard discretionary trust unfortunately the best you can do is carry the losses forward in the majority of cases.
Be very careful also when electing to carry losses forward. Seek advise on this as the choice of test individual can have rather nasty unintended consequences should there be a marriage breakdown etc in the future. These laws are quite draconian.
So this is another reason for setting up a hybrid disc trust as there is no need in most cases for the losses to be locked up in the trust and hence no requirement to make an family trust “Election”.
The best resource on trusts is “Trust Magic” by Dale Gatherum-Goss.
Cheers – Gordon
Hi,
A hybrid disc trust has just a few extra paragraphs in it compared to a std disc trust which allows for the issue of fixed units should you choose to do so. A HDT is a significantly more flexible beast. In addition to a few other benefits it will allow negative gearing whereas a standard disc trust will not.
Be careful which accountants you speak to. There are only a few excellent accountants/lawyers who fully understand Hybrid disc trusts which is surprising given that they really aren’t that difficult in practice. Also they have been around a lot longer than most people realize.
The professionals who are expert in this area are: Dale Gutherum-Goss (www.gatherumgoss.com), Kevin Munroe (www.taxlegal.com.au), Chris Batten (www.chrisbatten.com.au ) & Nick M? (www.strategicwealthmanagement.com.au).
Personally I use Dale as my accountant and anyone who reads the Somersoft forum will certainly know how highly regarded Dale is in the property investment community. Nick also is higly recommended by many. Chris and Kevin often act as advisors to accountants and professionals but their websites are a goldmine of information in these areas.
Kevin’s website is worth checking out as he has a number of excellent free publications explaining all the various structures. They are really worth taking the time to read.
Cheers – Gordon
Dale GG is fantastic. His fees are also very reasonable. But I can tell you now you won’t get better service anywhere. It never ceases to amaze me how quick Dale is to always get back to me with answers.
And for trusts he is right on the ball.
I can’t recommend anyone more highly.
Regards – Gordon
Saw this article to and did some searching for further information.
This crackdown is aimed more at people like private contactors etc who setup companies, trusts and partnerships etc to income split. So an example would be if there are not assets associated with the business and the type of work is similar to what a standard salaried employee would do then income splitting should not be allowed. Anyhow this seems to be the thrust of it.
The following extract might be helpful:
“ATO targets income splitting – through partnerships, companies and trusts
Tax Commissioner Michael Carmody has announced that the ATO will fund a number of test cases on arrangements under which personal services businesses split personal services income.
The cases selected will test arrangements that involve income splitting by partnerships, companies or trusts and the retention of profits in companies.
The personal services businesses targeted are those whose income is mainly a reward for the personal efforts or skills of an individual taxpayer.
They are not businesses that derive their income principally from their assets such as a farm or a transport business operating a semi-trailer.
Nor do they derive their income from their business structure such as a large accounting practice or a radiologist with a number of technical staff and an array of technical equipment.
“I will select cases to get clarification from the courts on how general anti-avoidance rules apply to these arrangements.”
The ATO has indicated that appropriate cases will be selected to test the following areas:
• ‘Husband and wife’ partnerships that derive personal services income and split the income 50:50 but only one of the partners performs the main bulk of the work.• Retention of personal services income by a company.
• Remuneration paid not by an entity to a principal which is not commensurate with the value of the services provided.
• Excessive remuneration to an associate such as a spouse for non principal work.
• Whether different considerations apply to professionals and tradespeople.
• Whether profits can be retained by a personal services business to acquire business assets.
• Whether profits can be used by a personal services business to retire debt incurred in acquiring the business.
• Whether different considerations apply t personal services businesses that are trusts if they are established before personal services are commenced.
• The distinction between personal services income and business structures.”
Cheers – Gordon
Hi,
Don’t spend any money initially. Firstly devote a lot of time reading through as much stuff as you can on the Somersoft forum. Make sure you go back a few years. You can skim throught a lot of irrelevant stuff.
It will be a relatively easy process to identify who the excellent accountants, lawyers and brokers etc are.
Doing this you will avoid just about every mistake most of us have made along the way.
Initially you might be confused with contradicing views etc but after awhile you will start to know the ones that are experts in their area and get a feel for the type of investor you are by relating to other’s experiences.
Quite frankly my opinion based on personal experience and that of friends is that most courses are a waste of time especially the more expensive ones.
But the sad part is that despite what most of us say people will continue to look for a silver bullet strategy from a “guru” only to find out that there is none and they have wasted a lot of money in the process.
Cheers – GA
