Forum Replies Created
Thanks Terry & JJ,
Terry, we have Trustee Company so property losses could be offset, right? Is it dangerous due to asset protection in the event of being sued?
I will speak to our accountant about what you have recommended.JJ, yes your concern is my concern and it was prior to setting up our trust. Our accountant informed us it would not be a problem
and Discretionary Family Trusts have never been tested in court . To avoid ATO's alienation of income concerns, he recommended purchasing property through the Trust and myself generating income by returning to work or developing another business venture. This way the Trust has more income sources.Hi,
I am still new to the forum and looking at purchasing my first investment property through our family trust.
After reading Terry's post on "not being able to offset losses against personal income" I am a little confused.We really needed to reduce my husbands personal income tax, so we set up a Company with a discretionary family trust (Trustee company) to distribute income to myself and our children in Dec 09.
The IP we are purchasing will be negative geared and I thought the losses would reduce our Company income?
Am I confused between the Trust's tax payable and personal tax once income is distributed?
I thought this is how it would essentially work at the end of every financial year for tax purposes:
Company Income (my husbands fee for service work) $250,000
less his work related expenses (90,000)
Net income $160,000$160,000 distributed as follows: $12,000 to our children & $74,000 to myself & my husband and taxed accordingly.
With an investment property in the scenario negative geared to approx $30,000.
The costs would be offset against the other Company income my husband generates, reducing net income to $130,000 and then distributed to as follows:
$12,000 to children & $59,000 to my husband and myself?
Is this correct?Pootie.
Thanks Terry and Richard,
Just to clarify, I should just organise finance (loan at int only) for the IP based on equity in PPoR and not take out a LOC on my PPoR.
Pootie
Thanks Terry,
With the knowledge and great guidance from this forum I have thought things though and will most likely do the following:
1. Buy an IP through our Family Trust with LOC and rent it as tenants (ensuring we meet ATO guidelines and may also apply for a private ruling as suggested if needed.
2. Change my curent PPoR loan to int only, with offset and rent it out it within 6 years to avoid CGT.
3. Use proceeds to purchase 1 or 2 more properties.I hope I am on the right track to accumulating wealth through IP's.
Big thanks
Pootie
Hi,
Thanks for responses.
Terry, our accountant has concerns about the ATO not being happy with PSI, as my husband is the only income earner at the moment and may be for a few years at this stage. He wanted the Trust to earn money form another source or aquire an IP to appear not to be avoiding tax or a scheme?
We are currently looking at finance to purchase an IP (with a view to becoming tenants as posted earlier) and I thought maybe we should also transfer our current PPoR into the Trusts name. My accountant has me really worried and the thought of being audited sounds scary to me.Pootie
Hi Jamie & Terry,
Thankyou both very much.
I will contact the bank and get things happening.
I look forward to starting an investment portfolio and accumulating property for my growing family of six, as well as reading some of the recommended literature.
This forum has been interesting and educational, I am officially addicted and love reading the forum posts……
Pootie
I will be keeping our current PPoR as our main residence and selling within the 6 year rule. So it wouldn't be an issue for a while, but understand your concern.
We plan on having a few IP's within 5 years anyway, which will all be subject to land tax either purchased though the Trust or personally – am I right in assuming this?
If after the sale of our current PPoR and the Trust rental becomes our main residence, does it cease to be an IP of the Trust and will the interest on the loan still be tax deductable?
So many questions Terry – I apologise.
I will look into private rulings….I hope it is easier than it sounds.
So long as the land tax is a deductable expense for the Trust, it works for us as it reduces our taxable income.
By "main residences", do you mean the one we intend to rent, or will the tax apply to all of the Trust properties?Thanks again for your time Terry and prompt responses.
Cheers
I am in N.S.W and will look into land taxes.
Thanks for links Terry. So it would seem that the Trust can begin to acquire investment properties and we could rent one of them and it would be a legitimate transaction for taxation purposes provided.
1. The Trust acquires other properties at some stage.
2. We pay market rent.
3. We only stay in the property for a short period of time.The third point, tends to concern me a little as I don't like to move too often (We have lived in our PPoR for over 7 years).
I know what I am considering is a lot more complicated than the above points, but I just want to make sure that it is allowable under Aust taxation laws and would not be considered a "scheme".
Terry,
Big thanks for your thoughts, I am just trying to get my head around things. Your advise is invaluable and I thankyou for your time.
I will look into the extra costs involved.N.B I was checking out the ATO rulings earlier to ensure legitimacy of a Director renting a property from a Trust they have an interest in. As we intend to purchase a few properties over the next several years, we may satisfy the ATO's requirements if we establish another trust for property investment purposes as you suggested.
A Trustee Company sounds familiar, our accountant has tried to explain the structure but it is evident that I am still unsure.
I will clarify things with our accountant. And yes, sorry my understanding is that the nominated beneficiaries are my husband myself and our children…..something to check out also.Does my proposal sound crazy?
We need a bigger home and we really need to reduce our taxable income. I thought about our Trust acquiring property and renting from the Trust after reading about the tax benefits associated with renting your "dream home" for lifestyle purposes, and having a number of investment properties. This is considered a great way to accummulate assets and wealth, with interest only loans to increase cash flow.
I don't like the idea of someone else being my landlord, so I thought about the Trust, and it owning property and renting from it.Hi Terryw,
I has read similar elsewhere and will investigate further. In relation to the valid point points you have raised
1. Our Trust is a discretionary Family Trust, so I will discuss any concerns the ATO may have with our accountant.
2. We plan on ensuring we pay market rent and that everything is "above board" legally, to ensure the relevant government bodies are happy. My husband and I are the only Directors and our children are the only beneficiaries, so no concerns with any property claims at a later stage.
3. We have two entities from what I understand. The income is generated via a Pty Ltd Company and then we have the Discretionary Family Trust that the income will flow through at the end of the fin year. So essentially the two are separate……I will however check with our accountant as you have raised a valid concern.
Many thanks for your thoughts.
Wow – I never thought reading about property investment would be so interesting!
Hi Terryw,
I have read several of your posts and very glad you have have commented on my post.
What are your thoughts on the Trust purchasing our next property and my husband and I renting it. The Trust would purchase it as an IP and negative gear to reduce tax payable?
Does this makes sense?
Hi JacM,
I was aware that the interest is not a taxable deduction due to PPoR, however it is still a tax benefit as I can claim approx $5000 – $6000 in out of pocket expenses per year on loan repayments, rates & agent fees etc.
Hi cmason,
Thanks, I thought this may be the case after reading some of the other forums.
So this leads me to my next question.
If I keep my IP as my PPoR to satisfy the 6 year rule, what do I consider the home that the Trust purchases?Hi JacM,
The first house will remain an IP and I will be negative gearing it to reduce my personal income after Trust income distribution (it is in my name only).
I will definitely check the residing requirements on the 6 year ruling with my accountant – thanks
