Hi, Eddiec

The accountant is a CPA, so that helps in this case.

Good to know that an income loss can be offset again capital gains.

One more question: Does making a Family Trust Election have any disadvantages, in terms of limiting who the beneficiaries are? Or it has absolutely no effect what so ever on the Trust as a whole.

Regards
Daniel

Hi, Ben

I posted this question on the thread below, but thought I do the same here to see if I get a different opinion. Maybe you can help me with this.

https://www.propertyinvesting.com/forums/getting-technical/finance/4323242

In your experience, is having a Family Trust with my partner and I as the trustees sufficient for the purposes in which the Trust is used (asset protection and income / capital gains distribution)? Should we go further by having a Company as a Trustee and us as the directors in the company? Is a Corporate Trustee an overkill?

We intend to keep any excess income / capital gains in the company to be taxed at corporate rates instead of our marginal tax rates, although any income or capital gains is unlikely to materialise for the next few yrs at least.

On reading the other thread, I am concerned with our borrowing ability, as part of our strategy requires us to borrow up to 90% LVR, and read that many Lenders get anxious with Family Trusts where they are not lending directly to people.

Opinions?

Regards
Daniel

Hi, Terry

Yes. I am beginning to see the different styles and degree of understand of some accountants. Was thinking to myself that I really feel sorry for the investors who use the accountant that I met with yesterday. Was telling the wife last night that we really need a clued-up accountant, because we take our investing very seriously and intend for it to be the main driver of our wealth creation.

I did learn some things from my dealings with the accountant, and have revamped my approach for the next accountant. Instead of going in to get feedback on whether using a DT is the right path, I will simply insist that I want to use a DT with my selected strategy, and how the accountant can make it work for me.

Still, yesterday's meeting prompted me to print out pages after pages of material from the ATO website, to prove that the strategy that I want to use works.

Carlin: Regarding family members, I had this impression that I could only include the immediate family as beneficiaries, but later found out that I could effective appoint anyone as a beneficiary as well under a DT. So I can think of my mum and aunt, and that can help with tax.

Freelance: True. You pay peanuts and you get monkeys. You deal with babies and end up changing diapers. I paid for my first meeting with an accountant before X'mas, but did not get much out of it because I was not fully prepared with our investment strategy, and the proper documentation. So, wasted about $180.

With yesterday's accountant (free consultation), I was more prepared, did up a document detailing our investment strategy. Being a slow learner, I finally understood that most accountants are not going to be looking out for your best interest, they simply want to get the job done as quickly as possible. I got the impression that the accountant recommended investing in my own name, because that was what he knew, and that it was the simpliest way to go about it.

Also, I learnt that unless you give the right input and ask the right questions, the accountant is only going to output what you ask. If I do not know what I truly want, then no body can really help me.

I am sure with my next upcoming meeting with another accountant this Friday, I will hopefully finally get the answers that I have been seeking.
 
Regards
Daniel  

Hi, Terry

The 2 accountants that I am meeting this week are not charging me. The accountant I am meeting today said a free half-hour initial meeting to see if he can help, and the second accountant that I am meeting on Friday said a free first hour meeting.

To speed things through, I type out a summary of my investing strategy, and how I intend to use the Family Trust and Corporate Trustee.

I realised that I have to provide the right input to get the right output from any accountant. The very first accountant I met before X'mas did not give me much insight into things, as we did not really ask the right questions to begin with.

Regards
Daniel 

Hi, Joyce

I have no idea how much C&N would charged over the average accountant to do the returns for individuals with IPs, or tax returns for trust. Then again, I have no other reference to compare against. That is another reason why I am planning on meeting another accountant, to get a difference point of view on the feasiblity of a trust for us, and to look at the fee structure to do the returns.

Personally, I looking forward to getting this Trust issue sorted out as soon as possible.

Anyhow, has anyone bought IPs using their SMSF? What are the pros and cons, in terms of tax rates, CGT, interest deduction and depreciation?

Regards
Daniel

Hi,

Dan42: I always thought that Capital Gains could be offset again Income losses. I will confirm this with the Accountant. To be able to offset income loss again capital gains would be very nice, indeed.

The Accountant gave me a price list and said that to do the accounts for a Trust, the cost will be from $1000 onwards. Time for me to start enquiring about the cost of other accountants. I have not gone to an accountant before, so had no idea as to the price list. Then again, I got to find one with exposure to property investing.

Regards
Daniel Lee

Hi,

After re-reading the opinions and comments of many who responsed, I thought about the Discretionary Trust once more. It finally made no sense to me to be concerned with a few thousand in cashflow loss from not being able to claim the interest deductions and depreciation.

My partner and I discussed about the use of a Family Trust with Corporate trustee in greater detail, and I reworked the figures to include capital growth. Our cashflow loss will shrink over the years as rental income grows and depreciation reduces, and it became clear that after 5-7 yrs, distribution of capital growth to reduce tax when we do sell a property is going to be a bigger issue than the accumulated cashflow losses.

Sure, the loss of the negative gearing benefit is going to cramp our cashflow for a while, but that only means we have to bargain harder and buy better.

The workings I did was this:

Cashflow loss (Yr 1): -$8.3K (interest and depreciation)
Capital gains (Yr 1): $21K (IP valued at $300K @ 7% growth)
Net gains (Yr 1): $12.7K

Cashflow loss by Yr 5: -$40.9K (Accumulated interest and depreciation)
Capital gains by Yr 5: $120.8K (IP capital growth over 5 yrs)
Net gains by Yr 5: $79.9K

So, we will have a good problem of distributing the net gains between us. Assuming 50% CGT on the net gains, we are still talking about nearly $40K CG. This problem could be exacerbated if in 5 yrs time, our income nears the 30% income threshold. Then, at least if we were to have a corporate trustee, we can keep the money in the company to have it taxed at 30%, and not add the CG to our personal income and have it taxed at the next tax bracket; or we could spread that CG among our immediate family.
 
So, I will go back the accountant when she reopens for business in 2 – 3 wks time to discuss about setting up a DT with Corporate Trustee. Now, I am actually more concerned about dealing with the amount of capital gains that comes with selling a property than the accumulated cashflow loss, but that is a good problem to have, and am pretty confident a Trust is going to be helpful to us.

I read about the strategy of leaving the money in the company to have it taxed at corporate rates instead of the higher personal tax rates, just wanna check that this is all legal, right? 

Thanks, everyone for your help.

Regards
Daniel Lee