Structure v’s cost effectiveness

To save on the company costs to start with, you could simply have yourself as the trustee, which will affect the extent of your asset protection, but will save you annual fees etc. for the company.

I would definitely start with a trust if that’s how you wish to proceed. It is costly to transfer them over later, so most don’t do it, and have to wear the ‘risk’ of having them in personal names.

I have a vending business, and my Mum was helping. She made the mistake of giving one kid a lolly – hundreds appeared!! One fellow came back for seconds – it had gone down his throat. She told him that he’d already had one. He then said ‘I’ll sue you for giving away free lollies!’. Gotta love where society is going when this is the automatic reaction from a 7 year old kid[]

Cheers
Mel

If you are going to set up a trust use a corporate trustee & get someone qualified to set it up for you. Did you know the most powerful individual/s in a trust are the principal/appointor, ie, those that have the power to remove/replace the trustee. Do you know the matrimonial implications of having the wrong person appointed to this role ??? Did you know trusts attract land tax on property without a threshold ??? Did you know that if your investment properties are negatively geared for tax, eg, after claiming depreciation, the losses are trapped in the trust and you cannot use to offset against other income ??? Do you know what a family trust election is & when you should make one ???
I would suggest the response to these questions are all NO – if so get some advice & set it up properly. If you are worried about spending $3000 on advice you are not serious about having the right structure.
JB

Hi again. You should buy “Trust Magic” by Dale Gatherum Goss if you haven’t already got it.

Some people have asked me about my statement above saying it should only cost about $60 per year for accounting-saying it was way too cheap. Many accountants charge a fee per property, I think mine was around $80 actually. So if you have 10 properties you would pay $800 plus another $80 for your personal tax return and another $80 for the trust tax return. You would be paying for the property tax schedules anyway, so having them held in a trust only means another tax return for the trust with minimal extra work. So really you are not paying that much extra.

Terryw
Discover Home Loans
North Sydney
[email protected]

For Mel et al
Yes I know what a Hybrid Trust and/or unit trust is and yes you can “construct” these so that negative gearing is achieved for a trust asset individually.
However, the ATO have a provision called Part IVA that applies to schemes entered into with the sole or dominant purpose of obtaining a tax benefit.
My educated view is that using hybrid trusts to achieve negative gearing for the unit holders where the underlying investment (say property) is held by the trust is high risk and will be subject to close scrutiny by the ATO. If you want your financial empire to be based on chance as Steve McNight commonly reminds us go right ahead. But beware of the risks you are taking.
Corporate trustees – necessary if you are looking for asset protection which in my view is the No 1 priority (especially for business owners). I apologise in making a blanket statement here – if you are an employee and not likely to be sued individual trustees are fine as your No 1 aim for using the trust would be on income splitting & tax minimisation not asset protection.
JB

Mel
You are not comparing apples with apples.The loss from negative gearing for individuals is able to be offset against other income – no problem. For trusts, including hybrid trusts, losses cannot be dsitributed to unit holders/beneficiaries & are c/fwd in the trust. The unit holders may be able to claim an interest deduction for their borrowings to acquire units & this is where the strategy becomes high risk. In return for your investment in the units you would expect a commercial investment return at least equal to the cost of your borrowing.
I’m starting to rave – just be aware that the hybrid trust strategy has risks attached for negative gearing outcomes that some wouldn’t want to take. As you acknowledge more knowledge makes for better investment decisions.
Merry Xmas
JB

gmh454
Thanks for your input into this. As you would know the onus of proof is on the taxpayer to defend the structure & strategies they use – even if this advice comes from a professional.
I have “raved” on about this issue because it seems from reading threads on the forum that people are setting up trusts at minimal costs & it worries me they are not getting adequate advice. I like trusts & use trusts but they are not for everyone. One other thing – over the last six mths I have received more audit/review requests from the ATO than ever before & mostly in relation to neg gearing & Interest deductions. They have certainly deployed more audit resources in this area & the possibility of being reviewed is probably no longer remote.
JB

Mel I think that is what JB is saying the Trust cannot distribute a loss. The Negative is formed by the Unit holder borrowing,
Actually if the debt funding come from the Unit holder, It would be very hard for a trust to make a loss, not impossible but unlikely.
This actually agrees with your interpretation if I am not wrong, just takes it a little further.
JB thanks for the feedback on the ATO.
[]

Gmh454 you are right. I apologise. The trust will in fact profit, as there are no interest costs for it to pay. So it will distribute the profit (rent-all expenses) to the unit holder, who will then claim both his interest costs, and the income, and will in fact come up with a loss (if a negative geared property – I can’t see why you would use the hybrid option otherwise).

This in fact does allow you to utilise the benefits of negative gearing through a trust, which was my point, although I obviously messed up when typing it.

Cheers
Mel