Look at this recent case
Tabone and Commissioner of Taxation [2006] AATA 466 (29 May 2006)
http://www.austlii.edu.au/au/cases/cth/aat/2006/466.html

It is about owning a home using a trust

Terryw
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That is the trouble with Adelaide Bank, they also sell their products through about 4 mortgage managers, all at potentially different rates.

If you do refinance out of one of these mortgage managers there are generally high exit fees, even on variable loans. And going back into the same funder still would result in these charges.

it seems like Queen didn’t know, or realise, because she thought it was just an increase. Being on the Adelaide forms would probably wouldn’t make you think of it as a refinancing as that was the original lender. So it is understandable that Queen wouldn’t have picked it up, unless she had read the documents carefully.

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E

Maybe a better question is “is it worthwhile doing this?”

The benefits appear to be solely in the claiming of interest.

Your company must rent the property at market rent. So each year, the rent should rise in line with the market. At first there maybe a loss, but as each year passes the loss gets less, and the tax deductions decrease.

Then after a few years there will actually be a profit to the company. ie the rent will be more than the interest and costs. This will mean your company is now paying extra tax which you could have avoided if held in your own name.

Then there is the loss of capital gains tax free status. If you sell, your company will pay tax on the gain.

Also, land tax would be payable, where it otherwise wouldn’t.

If you are going to look at doing something like this, maybe you could look at using a tax, as this will minimise the tax payable down the track.

Terryw
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There seems to be some confusion here.

An option is an agreement whereby the purchaser has the right, but not the obligation, to purchase something in the future.

eg. say Peter and Jackie’s property, the one they are looking at, is worth $1,000,000. They are not sure if they really want to buy, but think there is potential. So they offer the vendor $20,000 to sell them an option. The agreement may state that this will give them the right to purchase the property for $1mil in 6 months time.

This will give Peter and Jackie time to hold onto the property, without owning it, and wait and see if the development proposal is approved. If not approved, they can walk away, the vendor cannot force them to buy, but they would lose their $20,000. If it is approved, they can then buy the property, or they could onsell the option.

In 6 months the property may then value at $1.5mil because of the new development approval. So they have outlayed $20,000 and made $500,000 potential gain. So maybe able to just sell the option for $400,000. Whoever buys the option, will have spent $400,000, but they can then buy this $1.5mil property for $1mil = total cost $1.4mil.

The good thing about this is there is no stamp duty in some states on the purchase of an option. What is the stamp duty on buying and selling a $1mil property? = heaps! Other states have stamp duty on options, but you will still save as you would be paying stamp duty on a $20,000 option instead of a $1mil house.

The terms can vary, depending on the parties.
eg.:
-option fee, may be $1 or $1mil.
-Strike price, the price you pay for the property, can be more or less then value now, depends on your view of the market.
-The option fee may even come off the strike price
-The term, can be 1 day, 1 week, or 1 year etc
-you can put in that the option can be renewed with the paying (or not paying) of another option fee

And you could even rent the place in the meantime, and have part of the rent to be credited against the strike price. This is what a ‘lease option’ is.

Why would a seller agree to an option? If this case, the property has been on the market for a long time. The Vendor may not have had many offers, so may accept in the hope they will buy it it 6 months. Even if they don’t he will have made $20k from the option fee.

Never draw up an option contract yourself, always use a solicitor. You wouldn’t want to come around to 6 months and find the vendor can wriggle out of the agreement.

Terryw
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Queen

The $10K was probably listed in the original loan contract, but it may have been listed as a %.

I cannot understand how a lender can charge you an exit fee when you didn’t exit.

If you want, fax all of your loan agreement to me and I will have a look at it. 1300130010.

Terryw
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You’ve posted twice, see my reply here:
https://www.propertyinvesting.com/forum/topic/26171.html

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It really depends on how the trust is structured and the lenders policy. I have just written on this in my newsletter – send me an email if you want a copy.

Generally for asset protection reasons, you want to keep guarantees to a minimum. However, sometimes you may want to or need to include a partner for servicing reasons – your income alone may not be enough to get the loan through.

To give you flexibility, be careful with the wording of your trust deed. If you don’t need your wife’s income to service, it may be better not to name her at all on the trust deed at all.

Some lenders want a guarantee from all adult beneficiaries named on the deed. So I would consider having neither your wife nor your son named at all on the deed. Each will still be a beneficiary, coming under a general beneficiary category due to their relationship to the trustee. No need to name them.

Your wife still may be able to guarantee the loan if necessary, but not naming her will mean you can also leave her out, and preserve her borrowing capacity for next time.

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You can only claim one property as your main residence. So moving into the IP will mean if will be tax free that the period you live there, but at the same time, your home may be CGT liable for the period you didn’t live in it.

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Why not see a second broker for a different opinion

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a business is not a separate legal entity, so they cannot own property. The only options for owning property are via a personal name or a company, or either as trustee for a trust.

A Trust is well worth looking at.

Transfering properties over to a company or trust will result in stamp duty, and possibly CGT.

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