He is doing something that could cause him problems in the future.

2 main issues are tax and asset protection – if he gets into financial difficulty it may be more difficulty for him to control the situation.

Wow, thasi a good position. make sure you get some legal advice on tax and asset protection strategies too

When buying a 'house' you are actually being land with the house attached. technically the house is a fixture – it becomes part of the land. So the house is usually owned under the same structure as the land is owned.

There are rare exceptions such as on leased land the building is often constructed and owned by the tenant.

Hi John,

Transferring to a trust will not assist your serviceability for more loans. This is because being guarantor for a loan is assessed in the same way as being a borrower.
Having the property in your own name would also assist your retirement.

Transfer is not as simple as changing names on titles. You will need to seek legal advice – from a lawyer, not a settlement agent – as there are many issues involved such as stamp duty, land tax, asset protection, estate planning, bankruptcy, corporations act, conveyancing act matters and heaps of tax issues.

For example,
1. say you just changed the name on title without changing the loan amounts – this could mean you are disadvantaged in terms of tax deductibility.

2. Say you transferred to a trust and lost control of the trust to another beneficiary = you lose the property

3. say you transferred it for under market value and later when bankrupt…

There is not much equity in it now, so transfer to a trust won’t assist in extracting equity in a tax effective manner. If you had paid the loan off nearly then it would be different – the trust could borrow to buy it from you at full market value and claim interest on the whole loan amount. Released funds could be used for a new main residence – indirectly allowing the claiming of interest on the main residence.

Basically to transfer now will mean stamp duty, conveyancing fees, legal advice, tax advice, new loans -discharge of mortgage, new mortgage, exit fees new loan fees etc.

You might be better to rent it out and rent yourself for up to 6 years and then reassess the trust thing down the track.

Any new property you buy you should consider a trust though.

The 99/1% structure is not a good idea at the best of times. Owning 1% is virtually worthless but being on title it exposes the person to large asset protection issues because they will need to guarantee/be on the loan for that property. It does give some control in that the property cannot be sold withou the approval of the 1% owner, but this could be acheive by a caveat. This structure will also hurt future borrowing capacity at the 1% person is liable for the whole debt by can only rely on 1% of the rent. Who advised on this structure?

The so called adviser did give simplistic and bad advice – Are the legally able to advise on tax and trusts? Only solicitors can advise on the set up and legal implications of a trust as this is legal advice. Tax agents could advise on the tax consequences, but this is only a small part of what you need advising on – what if you did all this and then another beneficiary took control of the trust for example.

Your advisor should have told you the stamp duty and CGT consequences of moving properties into a trust – loan break and entry costs, conveyancing too. What about the clawback provisions of the bankruptcy act, conveyancing act and corporations act? The fact that you cannot leave trust assets in your will, etc too. Duties and responsibilities of a trustee, rights of beneficiaries, what happens on bankruptcy, incapacity. etc.

other points

Little asset protection on transfer to a trust too.

If your husband were to be able to distribute money to the trust then he could also distribute to you and this could offset any loss.

Sole traders can employ people.

Is your husband's income really subject to the PSI rules? Get some proper advice on this too.

Setting up a company to operate may be a good idea. But having 2 directors is just silly! Directors need to guarantee everything and often go down with the ship when it sinks. Doubling exposure without any benefits.

Yes you did get bad advice which was probably illegally given, and was possibly negligent.

I would suggest you first get some advice on the PSI issues. if your husband can operate under a company the company could either employ you, or dividends could flow through to the shareholders – which could be a discretionary trust and then diverted to you to eat up some of the losses.

Your accountant doesn't seem to be very good either. Main reason to use a pty ltd company is to limit liability.

What state is the property in?

Did you instruct your conveyancer not to settle? if so you may have a claim agains them.

You would want to set it up so your existing property will not be used as security for the new one. Avoid cross collateralising the loans.

You should probably set up a LOC type loan on the existing one up to 80% LVR.

$550,000 x 80% = $440,000. Less your exisitng loan of $330k = $110k

Use this as deposit for the investment and for all costs, except interest. Don't use your cash for the investment or you will be throwing money away in paying extra tax.

The investment loan could be 80% = $400,000 x 80% = $320,000. 89k plus costs coming from the St G LOC.

This way you will have 3 loans

1. Main residence at $330k. St G

2. LOC at 110k. St G

3. IO loan at any bank for $320,000

Interest should be deductible on 2 and 3 provide certain rules are followed.

The cash money should be in an offset account – normally off 1, but you have fixed so cannot. Probably best connected to loan 3. Don't put any money into LOC whatsoever except for the payment of interest.

Often there are sunset clauses which allow either party to rescind in something, such as registration of strata plan, isn't done by a certain date. I successfully got out of a long off the plan contract in VIC many years ago because they were so slow and prices had not increased – probably dropped.

Talk to your lawyer asap.

Number 8 is right.Captialising interest is ok, but the ATO can deny the deduction if the dominant purpose is for paying off your home loan sooner. See the recent tax ruling in 2012.

No, there is no choice. It can never be exempt from CGT – but the effect will be minimal. You may even be able to claim the main residence exemption on the period after you move out.