Good one Terry. I had know idea of the ruling, but I came close in my point #2:

Some type of creative accounting where deductions were made that should not have and income was not declared that should have been, both to the wrong party to minimise tax payable.

The crux of it is in point #8 on that link:

In the situation under consideration in this Ruling, an individual taxpayer borrows money to acquire units in a unit trust and incurs the interest expense – not the trustee.

It applies to unit trusts where the individual is providing finance by purchasing units and claiming interest on the loan to buy the units as a tax deduction.

You CAN sell or transfer your home to your trust and rent it back, though.

Everythings fine if the trustee borrows the money and all the tax calculations remain internal to the trust.

That is, the occupant/beneficiary has not set up an “artificial” tax arrangements through unit trusts, but are just beneficiaries.

So it is clear: do not borrow money to buy units in a trust that will buy your own home so you can rent it back and claim the interest as a deduction.

What you can do is this: sell or transfer your home to the trust with the trustee securing the mortgage.

The obvious difference is in the second scenario there is no contrived tax arrangement nor is the beneficiary claiming tax deductions.

As I pointed out above, it is likely a tax issue hinging on income and allowable deductions, not an ownership or transfer issue.

And so it was.

Thanks to Kelly and Terry for the heads-up and information, respectively.

James, assuming you take the correct tax approach to the structure, you should be fine. So if you have a unit trust, don’t borrow money to buy units so your trust can buy your house. If an accountant is suggesting this, alarm bells should ring.

However, if they are suggesting the trustee secure funds to purchase (if not owned outright by yourself), you are talking to the righ person.

Michael

Sorry Arty, posted while you were replying to Wayne. I don’t think you need a cash management account with Westpac broking at westpac.com.au, and they don’t have a minimum deposit & minimum trade. Remember though that the smaller the trade, the more significant the brokerage is.
I’m not sure what you expect from an online broker Wayne. The best broker is the cheapest broker if you are buying on line, as you don’t expect any advice.
Jim.
PS from WP Website:
“All purchase orders must result in a purchase value of at least $500, excluding brokerage and GST unless you have a registered holding in the security with Westpac Broking. There is no minimum limit for sales.”

I don’t want to be a kill joy Mel, but your figures don’t allow for a tax component ? Surely if tax is paid on the income from rent, there can’t be enough to repay that loan, or am I mistaken ?

Take 50,000….buy a house using the 11 second rule. Then Id buy a block of units…with enough left over for a newfoundland puppy

Hey “cash flow” players.

How often do you get together?
How many people do you get to play?
Do you know of any where in Sydney “cash flow” is played?

Matt[]

Hey guys, Monopoly is tops I love it. But recently we found a new game “Cash Flow” by Robert Kiosaki. It is fantastic, and it teaches you to look at the deals, you can buy +ve & -ve geared IP’s. Single houses, home units, duplexes, 8plexs, small and large businesses can all be bought and sold. At the same time you can aslo trade on the stock market.

This game is great, a much more advanced game than Monopoly.

Im hooked.

Matt[]

I love Monopoly!! All that wheeling and dealing and making other people beg for a break coz they owe you thousands in rent! Ahhh I love being being a Monopoly Tycoon!! (and Im the horse..you all can fight over whos gonna be the sports car and the loser can get to be the thimble LOL)

Maybe we can get rich with a sideline business where we create games for those not brave enough to play with real money? LOL

~ Heaven doesnt want me and Hell is afraid I will take over ~ :þ

You can sell or transfer any asset to a trust. The ATO has no power to stop this.

I am not familiar with that case, but it is likely a tax issue hinging on income and allowable deductions, not an ownership or transfer issue.

Just taking a stab in the dark, I’d say the case you’ve quoted probably had something like:

1. The owner transferring the asset at well below market or appraised value, thus paying less or no stamp duty.

2. Some type of creative accounting where deductions were made that should not have and income was not declared that should have been, both to the wrong party to minimise tax payable.

3. Had something to do with self-managed super funds (SMSF), borrowings, etc. A SMSF is a trust and you cannot transfer residential property into a trust that is not at arms lenght (ie the trustee/previous home owner can’t rent it).

This last restriction is from the Superannuation Act 1990, not from any tax law.

Of course, legally you are not renting it back to yourself. You, as an individual, are renting a property held in trust by a trustee for certain beneficiaries. It is a clearly defined legal structure.

Anyway, I’ve talked to both ATO and OSR staff regarding this issue in June and July this year and they have failed to tell me I cannot rent back a property I’ve transferred to another party, even if it’s a trust.

If the information you have is correct, it is critical you post the source of it here, because it would change how trusts may be used.

Michael

Without going into the capital gain / positive cash flow combination, I think you’ll find it is not so much the risk investors take, but what results will take you to your goals.

If $50pw average is what you need, so be it.
If you need 30 of these, that’s fine.
If you want to do this is four years and then retire, go for it.

For some, it is less about risk and more about:
a) how many IPs at $xx per week will I need to stop working, or
b) I have certain goals and require a level of wealth to achieve them, so this means xx IPs at $xx per week.

Others will have different goals and certainly different motivations driving these goals.

I find it a good exercise, sometimes it’s a little amusing, to ask people (investors) when they will STOP investing. That is, when will you reach a point in life where you do not need to invest any further? You can get a very blank look from them at this point.

As far as rural properties go, I have read and heard from several commentators, including those that have seen more than one property boom, that when the investors “go bush” it is an indication that the end is nigh. In property, this could mean only a slowing down over 1-3 years, or sideways market.

People need to realise that their property deals should be good for them over the long term(that it, take them to their goals).

One persons strategy to meet the financial committments of their goals may be 100% cash flow based. Another’s will be pure capital gain. Most will be a combination of both.

Michael