Hi Terry and Ben

Yep, "property and shares" are very different (generally go up in value) than "stock for a merchant" (generally gos down once it is purchased).

Yes from a property asset point of view, the single item value can increase with no tax to pay until you sell it, however Ben asked the question of what would be the recourse of living in a property which is owned by a family trust of which you are a benefactor.

I see it like this:- Issues

Cons:-

1)you will have to pay landtax from first dollar, where as in a personal name you get a threshold.
2)you will have to pay rent for the house at market value.
3)the loss from the negative gearing/ Depreciation will be traped in the trust, unless you give the trust some-other income from another business. ie book keeping. If you dont you may have to borrow your trust some money until it breaks even.
4)Unless you get PIT trust, then it will vest in 80 years.
5)Have to pay CGT tax once it is sold, where as a PPOR you dont pay any
6)Good for a investment property but if you are planning to live in it, better off having it in your wife name, thus you sill get asset protection if you are self employed, so you dont pay landtax and get no CGT.

Pro.

1)Asset protection
2)Ability to distribute to low income earners once the property starts to make a profit.
3)With a company trustee, its easy to change directors thus very easy to change control of the trust.
4)Get a 50% CGT rebate for trust and another 50% for small business.
5)With a PIT trust it does not VEST, perfect for passing on wealth to generations. (no need to use the hybrid part IMHO)

I dont particularly like hybrid property trusts, if you push the boundaries you will get a ATO audit, when there is other ways to do it which the ATO wont blink at, especially if you are self employed with another business.

Hope this helps ya mate.

Regards Stacey

Hi,

My understanding is that any profit at all left in the trust at end of financial year will be taxed at the highest rate. This includes any stock you may have or any monies you paid off the principle of the property loan if you have a P&I loan. I recommend you get a interest only loan if the property is for investing purpose.
 
All profit should be dispersed to beneficiaries before 30th June, else you will cop a massive tax bill on your profit that you have left in the trust.

You can disperse to all of your family members and all related business including a bucket company, if all your family members have a 80K income + 25K super each.
 
The bucket company could than soak up any extra profit at a tax rate of 30%, i also recommend the bucket company has a "family trust" as the shareholder of the company thus it gives you somewhere to park your monies until you can find a family member to disperse to, if for example your son/daughter wants to go to university once they are over 18, you can disperse to then with full franking credits or they may be only earning 30-40K per year when they first start their job, you could top up their wage, thus pulling money out of the company via the "family trust" shareholder.

I notice you said you are selfemployed, I would setup another trust as a working family trust to do business with the public, separate to your property trust. Then to stop loses in the property trust with neg gear property, the property trust could do the books and paperwork  for all your business structure thus giving it some income to soak up loses from the first few years neg gear  in property trust.

The problem now lies in the fact if you want to keep assets in the trust, like "stock" for a retail shop, come to the end of the year you will be hit with a high tax bill 47.5% on any profit (asset = stock = profit) left. You used to be able to leave the money in the trust as working capital and just pay the 30% company tax for the trustee company and it's written up as a UPE on the trust books. The ATO no longer let you do this.
 
I think businesses that are in accumulation phase of business growth, will have to set up a subtrust held on the books of the main trust and held for the primary benefit of the trustee company. Once the sub trust is setup you can journal entry that the profit from the family trust was dispersed to the trustee company and then loaned back with a interest only loan for 7 or 10 year period. The ATO has indicated this is OK. The interest is tax deductible to the family trust, but income for the trustee company, but at least you still can have some working capital in your business family trust account.

This arrangement is much better than Div7A loan with 1/7 of the principle has to paid each year as well as the interest.

You could live in the property no worries as long as you were paying market rent and keep everything at arms length. However you will be liable for Land Tax from the first dollar though.

Regards

Stacey