Forum Replies Created
- Originally posted by bluemackart:
Does anyone know of some good accountants who specialise in property investing residing in Melbourne??!
Dale Gatherum-Goss is used by a number of regulars on these property forums, with no complaints that I’ve seen. He also posts on the Somersoft forums:
http://www.somersoft.com/forums/index.php.
GP
Cameron,
As Rob said, talk to your accountant (or one who’s knowledgeable about trusts and property investing if yours is not). What’s best for you will depend somewhat on your circumstances. Note though that I’ve seen a number of comments on these forums, and have experienced myself, that some accountants who are not particularly savvy about investing tend to dismiss trusts as not being a good way to go. While it may well be true for your circumstances, first ensure that your accountant has experience with property investing and trusts (ie. has other clients with property portfolios and preferably invests in property himself). Also ask what he knows about hybrid trusts (very few apparently know anything).
For a brief summary of the different options, take a look at:
http://www.strategicwealth.com.au/e2content.asp?Request=Structure.Structure
Generally a trust with a corporate trustee is considered the best from an asset protection point of view, but it’s also relatively expensive to operate.
For a good b00k on family trusts, you could buy Dale G-G’s “Trust Magic”:
http://www.gatherumgoss.com/shopping.htm
It’s not the cheapest b00k you’ll ever find on the topic, but compared to Nick Renton’s b00ks, it’s a lot easier reading. And Renton doesn’t cover hybrid trusts (at least not in his b00k I read).
And yes, I think getting it right from the start is definitely the best idea. Changing structures down the track can be very expensive.
GP
Luke,
It recently cost me about $2600 to have a good accountant set up a hybrid discretionary trust with corporate trustee. You could find cheaper, but given the importance of having your structure right, I don’t think it pays to skimp. In the event of a law suit, the devil could be in the detail, so you want to have it right before you start.
A single director company just for the purposes of being a trustee is not very expensive to run.
There are two primary choices with trusts: a pure discretionary trust and a hybrid trust (cross between a discretionary and a unit trust). The latter can be useful for negatively geared portfolios and for allowing multiple independant parties to invest together.
GP
Hi,
I’d suggest you look in much more detail at the figures to see exactly what it’s going to cost you (post them here if you like).
What you need to look at are specifics like:
– The cost of your new Port Lincoln house.
– Whether you’d buy that outright or borrow (remember, no tax deduction for PPOR loans).
– The actual amount you’d end up with for investing.
– How much you could reasonably expect (and want) to borrow against that.
– The cost of those borrowings.
– The realistic net return from your investments.
– How much it would ultimately cost you out of your current salary, and whether the lenders would be satisfied with your serviceability.Borrowing costs are fairly straight forward: the mortgage rate plus fees.
Investment returns are harder. They depend on what you invest in and (in the case of real estate) where it’s located. Your suggested figure of $700pw from a $700K portfolio is about 5.2% gross. I don’t think you’d be buying in any major metro areas for that sort of return right now, although may well find it and better in other areas. Remember though that you also want to consider capital growth as well as income. You can get a 6% or higher income return at the moment just by putting your money in the bank.
And you also need to look at the current state of the property market, which by all accounts is forecast for slow growth for the next few years at least. Shares, on the other hand, are roaring right now, but many are suggesting they are too hot and due for a correction. If you have sufficient funds, spreading them across different asset classes is probably the best policy, but if you want to directly invest in shares then you’d need to study up on them too (it’s not always easy being an investor!). Managed share funds would be an alternative, but still require some research.
As for a worthy cause to donate $8K to, I’d suggest your future investment would be the best cause for you right now.
GP
I have no idea about the place but it’s been discussed a few times on the Somersoft forums:
http://www.somersoft.com/forums/search.php?searchid=184758
GP
I would agree with those who say stuff it in the bank and educate yourself. Read books, magazines, newspapers, Websites, investment forums (property & shares), and so on. Go to some of the investors’ groups meetings (I don’t know if this forum has any, but they have regular ones over on Somersoft). Find out who the respected experts are, read their books and perhaps go to some of their seminars.
And while you’re doing all that, work out what your requirements and goals are, and thus what types of investments will suit your needs.
And you probably thought having money would make your life easier [biggrin].
For banking in the meantime, you could either put it in term deposits (look up the best rates on Cannex) or in somewhere like ING Direct. BankWest has a good deal going at the moment: an arrangement essentially identical to ING but paying 6% for the first year then reverting to 5.25%, the same as ING.
Cannex is here: http://www.cannex.com.au/surveys.html
BankWest is here: http://www.abetterdeal.com.au, although there seems to be a problem with that Website as I write this.
ING Direct is here: http://www.ingdirect.com.au
GP
Originally posted by myoung:a normal company can retain profits over financial years, whereas a trust MUST pay all profits to the unit holders of the trust for the FY
My understanding is that if a hybrid trust has unit holders then profits have to be distributed to them, otherwise the profits can be retained in the trust but are taxed at the top rate.
GP
A couple of other things to consider:
If you’re running a business in your company, then buying passive investments in the same company is putting them at risk if your business goes broke owing money.
If the trust is a hybrid trust, or you create a new one, then you can buy the properties in the trust funded by the company by having it buy income units. That way you can discretionally distribute capital gains if you do ever sell, and income is going back to the company and taxed at the company rate.
GP
Ozi,
My parents have flown with Freedom Air a few times, although to and from Hamilton not Dunedin. They seemed to think they were okay, although the flights they always got arrived back in Hamilton at nearly midnight. No food except for a few snacks that you can buy I believe.
I’ve only stayed in Dunedin on holiday and was then on the Otago Peninsula. Probably better in the main part of town for your purpose, although it doesn’t take long to drive anywhere.
GP
I recently read “More Wealth From Residential Property” which was pretty good.
GP
Originally posted by georgisj:I have just had the cost of $2700 for a Hybrid Discretionary Trust with corporate trustee by Gatherum-Goss
That’s similar to what I paid for the same thing, although not from G-G.
GP
Originally posted by gramyre:Am I right in saying that the asset protection comes not from the Discretionary trust but from having a corporate trusee for that trust?
Further to Lucifer_au’s response, a corporate trustee is more to protect the trust managers than the trust assets. As it’s the trustee who’s most at risk of being sued, it’s better if it’s a $2 company than an individual – although there is still some risk to the directors of that company.
GP
Perhaps the best information about Australian trusts for property investors is in Dale Gatherum-Goss’s book “Trust Magic”. You can order it via his Website:
http://www.gatherumgoss.com/shopping.htm
Nick Renton’s book on Family Trusts is good too, but rather dry reading.
There is a little basic info I’ve seen on the Net, but the books are more detailed.
Basically, from my understanding, there are three types of trusts: a discretionary trust, a unit trust, and a hybrid trust. The latter is a combination of the first two.
Discretionary trusts are generally favoured for property investors because of the asset protection and tax advantages they provide. Hybrid trusts are good if you intend to negatively gear the portfolio, especially if the borrower is a high income earner. When no units are on issue from a hybrid trust, it is essentially the same as a discretionary trust.
Whether you want a trust at all would depend somewhat on your circumstances. You should seek advice from a property-savvy accountant. I gather a lot of other accountants are not always in favour of using trusts. My accountant tried to put me off the idea when I first mentioned it to him.
You don’t necessarily need to find an accountant near you. A number of people on these forums use people like Dale even though they (literally in a few cases) live half a world away.
Dale’s in Melbourne and frequents the Somersoft property forums. Another in Sydney is Nick Moustacas at http://www.strategicwealth.com.au. And in Queensland is Julia Hartman at http://www.bantacs.com.au, a member of this forum.
GP
Originally posted by recoveryman:I am so confused
I think that is the primary aim of tax legislation [
].GP
Hi Chris,
Originally posted by masteraccountants:The de minimis exemption will be satisfied if the total of the attributable incomes of all the trust estates is equal to or less than the lesser of:
$20 000 or
10 per cent of the total of the net incomes of those trust estates.
I can see there still being a problem if there are no NZ beneficiaries to distribute the capital gains to. If you tried to retain all capital gains in the trust, then it would likely all become attributable income, and would also likely form the majority of the trust’s net income. So the attributable income, even if less than $20K, would not be less than 10% of the total net income.
I think this means that essentially 90% of the trust’s income (including gains) would have to be distributed to beneficiaries (the main method of making it exempt from attributable income) to enable the remaining income to be less than 10% of the total.
There is another legal article that I have found that offers different options and interpretationsOne thing that concerns me about different legal interpretions is that unless there’s a clear court ruling on the matter, which I think would then be available in the ATO legal database, I could be the one forking out for a court case to establish the ruling (and quite possibly losing!).
Perhaps one way to partly get around it might be to transfer the money by stealth. On each trip to NZ, each person take out $9,999 in cash in a brown paper bag and deposit it in NZ. After a few trips over, there’d be enough for a deposit with no official funds transfers [whistle].
Regards,
GPHi Chris,
Originally posted by masteraccountants:You have still not picked up on the operative words of “for inadequate consideration”.
Well as I mentioned, from what I’ve read this term doesn’t apply to discretionary trusts, which I gather is what we’re talking about for NZ. For discretionary trusts there is no mention of the amount of consideration, so I assume the provision would equally apply for full consideration.
My understanding of the purpose of the rule is to catch people who do pretty much what you’re suggesting: form foreign discretionary trusts to accumulate wealth overseas without paying tax on the income or gains in Australia.
But as I say, I’m going have to get the accountant here to look into it in more detail. I’ll mention this aspect to him and see what he says.
And he did mention other FIF provisions that might apply, but I haven’t had a chance to read through all that stuff yet.
Thanks for your help.
Regards,
GPHi Chris,
Originally posted by masteraccountants:It looks like we have some budding legal eagles out there!
Well in this case it’s more that I was talking to an accountant here about transferring funds to a NZ trust and he said I might be subject to these provisions. So I thought I’d read up on them myself first before letting him charge me money to do it for me [grad].
The operative words are “property” being transferred for “inadequate or no consideration”.I think the “inadequate or no consideration” phrase only applies to the non-discretionary trust, which is not clear in the quote you gave. In the document I’m reading (the ATO’s foreign income return form guide) it makes it clearer:
If you have transferred property or services to a non-resident trust estate,the profits of the trust may be attributed to you —that is,the profits may be included in your assessable income even though you have not received a distribution from the trust.You will be regarded as a transferor if you:
• have at any time transferred property or services to a non-resident discretionary trust estate or
• transferred property or services after 7.30 p.m. on 12 April 1989 to a non-resident trust estate that is non-discretionary for either no consideration or for consideration less than an arm ’s length amount.
And the glossary defines “property” to include money.
So it would seem to me that the transferring of money to a NZ discretionary trust would be subject to these provisions.
One possibility that may help me, given that I have family in NZ, is where it mentions exempted income:
In determining the attributable amount,the net income of a non-resident trust estate is reduced by the following amounts to the extent they relate to amounts included in the net income of the trust estate:• amounts that have been included in the assessable income of a beneficiary under section 97 of the Act —that is, amounts to which a beneficiary is presently entitled.
So if I always distributed capital gains to only NZ beneficiaries then perhaps I’d be okay (and presumably they’d have no tax to pay either).
Although I thought I read or heard somewhere that even if the property was bought in an Australian trust, foreign-sourced income distributed to a non-resident beneficiary would not be taxed in Australia either (but I’d have to ask about that to be sure – there might still be some witholding tax).
From my reading of this document it appears I could have a problem (and thus so potentially could other people), but it’s looking like I might have to pay the accountant here money after-all to check it out properly for me [eh].
How much simpler life would be without tax…
Regards,
GPHi Chris,
Originally posted by masteraccountants:The NZ Trust structure also allows you to not pay CGT in Australia – as long as no capital gains sourced distributions are made
I’ve just been reading up some stuff on Australia’s Transferor Trust provisions and am wondering how this would affect most Australian-resident investors using NZ trusts?
It seems that if an Australian resident (or entity) moves funds to a NZ trust then they may be taxed in Australia on the NZ trust profits whether they actually get a distribution or not.
Do you know of this and whether it would normally apply – or how to get around it if it does?
Thanks.
GP
Originally posted by Derek:I’ll email you a copy of the index so you can see what the book covers
Dale’s Website also has a basic outline of what’s in the book.
GP
Originally posted by murph38:but was warned about selling it before the two year mark due to CGT
The only thing I can think of is that if you bought it and sold it again soon after, even if you did live in it during that time, the ATO may try to say you were doing it as a business (ie. buying and selling property for profit).
I don’t know much about it, but I wouldn’t have thought there’d be much chance of having a problem in that regard.
GP
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