[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 16, 2010 - 1:32 am

Yes, you get an exemption for the period it was your PPOR, but getting the 'valuation' method' is not available to you.

Basically, you will pay CGT, when it is sold, for the period it was a rental, asa percentage of the total ownbership period.

ie, held for 5 years, PPOR for 4 years. You will pay CGT on 80% of the capital gain.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 15, 2010 - 7:17 am

Thanks for posting, it gave me a laugh.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 15, 2010 - 4:23 am

number 8 wrote:

Dan42,

I assure you Banker is not arguing that your personal circumstances require crossing- In fact you would not even consider the idea from the information you have provided.  What you have mentioned is correct. We all have our stories. The point he is making is don't bash an idea / concept unless you have considered every angle.

C/C is not evil at every level, and it does provide an avenue for wealth creation for many people.

http://www.birchcorp.com.au

I understand that, it's just a personal example of a case where the bank wanted to CC, and we didn't. And we are $6000 better off because of it.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 15, 2010 - 3:27 am

Wife and I set up LOC as described on this forum by Richard, Terry and others, then used the LOC as deposit for our latest IP. We borrowed about 85% for the new unit. Bank wanted to cross-collateralise, and wanted to charge us above $8,000 LMI.

Keeping everything split saved us at least $6,500 in LMI.

So there's another reason to avoid.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 14, 2010 - 1:08 am

You would need to see a copy of the trust deed.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 13, 2010 - 4:16 am

Banker wrote:

Point 1: individual goes belly up. Bankrupt. The courts seize their assets and the balance sheet of the trust shows the trust owes the individual say 200k. A creditor, bank or liquidator can claim against that asset. This could be reassigned to the creditor. Now the trust owes the creditor 200k.

As mentioned above – this comes down to the way the asset is held. If the trust has 100% borrowed from non-beneficial sources it might not be an issue however unpaid distributions relate to money the trust owes the individual – therefore not held in trust.

I understand that point. My view of asset protection is a little different. Using your example above, the creditor is owed the $200,000, I agree. But if all the assets were held in the individuals name, the creditor would have access to ALL of the assets. In this case, where the asset is held in a trust, the asset is protected from the creditors.

eg, Asset book value $1.5m, bank borrowings of $1m, beneficiary loans to bankrupt $200k, non-bankrupt $300k.

The creditor has a claim on the $200k, nothing else, as it is an asset of bankrupt. Let's say the creditor is owed $800,000. If this asset was held in the name of bankrupt, the creditor would stake a claim over the asset, to clear the debt. As it is held in trust, all the creditor can get at is the $200,000.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 13, 2010 - 2:53 am

Banker wrote:

 OK but trust assets are different to beneficiary loans. Beneficiary loans are an asset to the individual / debt to the trust. If the individual goes tits up the courts can seize their asset. Including reasignment of monies owed to them.

Plan B is different – as I outlined above with a builder. Trading companies have different benefits. I am questioning the protection for your average person buying an investment property in a trust.

Firstly, Plan B is not different. It's a trust with a company as trustee. It is holding the business / investment assets.

Point one – sure, but if the money has been paid out, then the individual goes belly-up, then whats the difference? In the end, the individual is left with nothing, and the trust has paid the money out. What IS protected is any asset that the trust owns.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 13, 2010 - 12:31 am

To expand on Plan B from above.

Company trust structure owns business assets. Dad is the sole director of the trustee company. Mum owns the house and all personal ssets in her name only.

Dad is sued as director of company, along with the company itself. Mum can't be sued, as she has no involvement in the business.

Let's say Dad loses. He has no assets in his own name. What court would force Mum, who has no involvement in the company, to sell her house to pay for Dad's damages?

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 13, 2010 - 12:27 am

Sure, a trust won't protect you if a guarantee is taken by the bank. That is a given.

I disagree that the trust property is at risk if the individuals are sued, in most circumstances. If there has been some transfer of assets to the trust, for the main purpose of hiding the asset, then the trust structure probably won't work. This is the same situation as transferring an asset to the spouse to avoid creditors.

But if you are sued in the general course of business, having the investment assets separate from the personal assets will generally protect the personal assets.

Plan A – Mum and Dad hold all assets in their own name.
Mum and Dad are sued, they lose, and are ordered to pay damages to the 'winner'. All of their assets are at risk.

Plan B – Mum and Dad own PPOR, Trust owns Business
Business is sued, they lose, damages payable. Personal assets would generally be safe, as it is the company as trustee that is liable for the damages, as a separate legal entity.

There have been some examples recently of courts 'looking through' the trust, but those cases tend to be where assets are transferred for the specific purpose of hiding assets from creditors.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 12, 2010 - 11:15 pm

What about if the company as trustee is successfully sued? The assets of the trust are then possibly at risk, but the family home and other assets held by the individuals are generally safe. Surely this is a major benefit of having the assets in a trust.

Your second problem is not really a problem at all. Most trusts are family trusts, where distributions may go to mum, dad, couple of kids and maybe a beneficiary company. The individuals realise that he trust needs some form of working capital, so the trust holds onto the distributions, and has a loan owing to the individuals. Once the trust is running successfully, regualr distributions can be made to the beneficiaries.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 12, 2010 - 4:30 am

wealth4life.com wrote:

67% of the recent buyers are from overseas and they won't live in the property.

Do you have a reference for this? It sounds very high.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 11, 2010 - 11:54 pm

No, there is no GST.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 11, 2010 - 11:52 pm

kong71286 wrote:

From my understanding you have a 'company' that acts as trustee on behalf of your 'family trust' to purchase a 'property', whereby you act as the 'guarantor' and also lend the company the 20% deposit costs. What I don't quite understand is how the taxing system works

I.e. Is the rent from the property considered the company's income?
If so, is it taxed at a flat rate of 30%, or does it act like another individual?

0% tax for<$6,000
15% tax for <$35,000
30% for <$80,000

Also,
Since the loan is for an 'income producing asset', is the 'interest' tax deductible'?
Can you deduct it from the director's tax? or only from the company's tax?

Any comments and advice is appreciated!

Hi Kong,

The taxable entity in this example is the trust, not the company. This is because the company is acting as trustee, rather than trading in its own right.

A trust generally does not pay income tax, because it distributes it's income to other entites / individuals. One of the benefits ofd a discretionary (family) trust is that the income is distributed at the discretion of the trustee. So the trustee can distribute income to individuals with lower incomes, providing they are allowable beneficiaries in the trust deed.

The asset is held by the trust, so the loan interest will be deductible in the trust, rather than individuals / directors.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 9, 2010 - 6:55 am

propertyboy wrote:

So how long do you have to live in it after settlement for it to become your main residence? Which bit of legislation outlines this length? Where does it say 6 months? And how do you go about registering it?

As I've said before, there is no set period of time that you have to live in the property, for it to become your PPOR.

You do, however, have to live in it for 6 months to qualify for the First Home Owners Grant. The FHOG is separate from CGT.

YOu don't have to register your house as a PPOR for CGT, but you have to prove it if asked. You can do this by changing the address onyour drivers licence, changing your adress on the electoral roll, getting electricity connected in your name….

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 9, 2010 - 5:16 am

casanovawa wrote:

I just want to clarify as the couple of places i have read up on this, even on the ATO site to me wasn't quite clear.  If you move in for 6 months and then move out for 6 years is that the only period that you can use the 6 year rule?  Or could u move in for 6 months, rent out for 6 years, move in for 6 months and then rent out again for another 6 years and so effectively collect 12 years of rental, live in it for 1 year and claim CGT exemption for it all when u sold it???

Thats what that para 2 of the above seems to state Dan…

First point, there is no minimum amount of time that you need to live in the PPOR. But you have to be able to prove it.

But yes, you are correct, the 6 years 'resets' every time you move back into the PPOR, so as long as you move back in before the 6 years is up, then rent it out again, it will be CGT free.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 9, 2010 - 5:09 am

Here's an article from 18 months ago.

http://www.heraldsun.com.au/business/barefoot-investor/lambs-to-slaughter/story-e6frfim6-1111117848906

EDIT:

And an even better article from 3 weeks ago

http://www.heraldsun.com.au/business/barefoot-investor/watch-out-sharks-about/story-e6frfim6-1225846168604

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 9, 2010 - 4:27 am

propertyboy wrote:

^thanks for your help, but where does it say you have to live in it straight after settlement? If you have a 6 year exemption, why cant you just rent it out from settlement then move in within that 6 year period? Which section says you have to move in straight after settlement? I cant find this anywhere.

Why would it matter if you rent out for 5 years then move back in or  live in it straight after settlement then move out for 5 years?

You have essentially rented it out for the same period but just moved in the place at different times.

From s118-145 – Income Tax Assessment Act 1997

(1)  If a dwelling that was your main residence ceases to be your main residence, you may choose to continue to treat it as your main residence.

             (2)  If you use the part of the dwelling that was your main residence for the purpose of producing assessable income, the maximum period that you can treat it as your main residence under this section while you use it for that purpose is 6 years. You are entitled to another maximum period of 6 years each time the dwelling again becomes and ceases to be your main residence.

If you rented it out as soon as it settled, then it was NEVER your main residence. The 6 year rule is only if the house was your PPOR first. That's just the law. 

Don't try to rationalise tax law, you will go crazy!  

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 9, 2010 - 1:50 am

$45,000 is a lot of money. Would you be better off putting that towards a deposit?

No-one can guarantee a 10% return. It sounds like b-s to me, but I'm pretty cynical about these type of 'arrangements' that require large up-front payments. I'd be doing my own research, and putting the 45 large towards a new IP.

Just my 2 cents.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 8, 2010 - 11:36 pm

Depending on what state you are in, there may be a stamp duty cost.

Personally, I wouldn't bother. That's just my opinion, and I'm sure others will have differing opinions. My wife and I have both our PPOR and IP in joint names.

[Dan42Member@dan42Join Date: 2008Post Count: 619]

April 8, 2010 - 11:22 pm

aaabbbccc,

The parents in law would be up for CGT whether they are retired or not. They wouild pay less CGT in retirement (assuming they would be earning less income in retirement), but they would still pay SOME CGT.

(I am assuming the property is not held in an SMSF)