Hi All,
I’ve read all I can from the forum here and other web pages about hybrid trusts. My situation briefly is that my wife and I and another couple want to jointly buy a house. As neither of our wives work, we thought the hybrid trust would let us divvy up any rental income and capital gain in the future to them, as a way to pay less tax.
I rang my accountant, and he said he strongly advises against such a move as the Tax Office would probably view it as a tax avoidance scheme and quoted some act about tax avoidance.
Also, I rang my friendly banker and described the setup, and was told the loan would probably be at commercial rates, not usual homeloan rates.So from this, two questions:
1 – have I understood the benefits of a hybrid trust correctly, and is it the best structure for us.
2 – does anyone currently have such an arrangement and is not currently being audited?Thanks,
Tone.BigTone
Be sure to seek the best professional advice as possible but also beleive inwhat you have learnt. If you feel your professional advice is based on a lack of their information seek advice from some one who really knows.
I have a hybrid trust structure and recently purchased a house with the NAB at 6.05% fixed for 5 years, regular home loan.
However, the reason we have a trust is firstly for asset protection and then for the taxation benefits.
Negative gearing also provides taxation benefits so there is nothing wrong with legally paying less tax if your structure or vehicle allows for it.
There are many very good accoutants who understand the full benefits of a trust, you might want to find one of them. Many have been mentioned on this forum.
Good luck
Cheers
Leigh K[
]Read, learn, grow but most of all do it.
Get a new accountant (and banker). This accountant will probably prevent you getting rich and cost you lots of money in the long run!
check out http://www.chrisbatten.com.au for some good ideas.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
is the cashflow of this property positive or negative
who will be the trustee? who will b the discretionary beneficiaries and who will be the unit holders
how is the gearing going to be passed?It would be cashflow negative. The trustee would possibly be me but am not sure of the importance of the role. I thought all four of us would be beneficiaries and unit holders. My understanding of the trust is that the income can be apportioned however we like i.e. to our partners.
I dont understand the question about how the gearing is going to be passed sorry.
One other question regarding the loan as well – Leigh K any more info would be great. Would both couples in our case get a loan to buy units in the trust or does the bank require a mortgage over a title?Big
bank would definitely require a mortgage over the property and would want directors guarrantees or guarrantees of the trustees. The may also ask for guarrantees by the beneficiaries-depending on the structure.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
The people with the highest income would purchase units in the trust and claim an income loss pursuant to ITAA 97. Because the cashflow is negative, there would not be any distributions from the trust.
U need an appointor, because there are four parties involved. The trustee is important because 2 different couples are involved.
U may also want to include in the deed a corporate beneficiaryOk thanks for that – I think getting it now. Us two ‘bread winners’ would buy the units and claim the interest on the loans as a deduction. Assuming we have all four of us as beneficiaries, I assume the rental income the property generates has to be apportioned in some way and appear on our personal tax returns?
When I explained this to my accountant, his arguement was that if I was not planning to earn an income from the loan, the interest was not deductible.Get a second opinion.
I understand that Steve McKnight has written a booklet about trust. Consider buying it, well worth it.
Thence get a second accountant’s opinion as your present one doesn’t appear to be much on the ball.
If you quoted your present accountant correctly it appears as if he hasn’t got a clue about the difference between tax avoidance and tax evasion. There isn’t anything illegal about the former.
The ENJOlady said : “However, the reason we have a trust is firstly for asset protection and then for the taxation benefits.”
If you honestly can say without laughing what the Enjolady is saying then (so I believe) the taxation department couldn’t possibly consider that it is a tax evasion situation.
As the ENJOlady states, the reason for using a trust is what is most important.
My advice ? Forget about buying a property with a partner. You have already got two partners (your wife and the taxation department).
Too many chiefs and not enough Indians so it sounds like. Women think more from an emotional level than men.
So dealing with some one else’s wife (on top of having to deal with your own wife’s fears and emotions) just looks like too much stress to me.
If you do proceed with a partner I suggest you agree about the rules in writing beforehand so as to avoid at least some of the otherwise unavoidable disputes.
I would be looking to deal with certainly the following things in such an agreement :
Time when to sell; How to determine the selling price; Have a mechanism in place whereby either partner is able to dissolve the partnership on a fair and reasonable basis without one party feeling they were robbed.
The lattter can be achieved by either partner having the right to terminate the partnership by giving notice in writing to the other partner that they want to disolve the partnership. The person giving such notice must also set the value of the property.
The partner receiving the notice thence has the option to either buy or sell at the nominated price.
That will force the first partner to nominate a fair price. If he sets too high a price the other person will opt to sell (and under the agreement the other party MUST buy in that case). If the first partner sets too low a price then the second partner would snap up the property (and the first partner is obligated under the agreement to sell in that case). So whatever price is nominated has to be a fair price or else it will work against oneself.
As always, I would suggest that you get a solicitor to draw up such an agreement as there are some further points as wellwhich ought to be in the agreement.
Pisces133
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