LOC & Trust

A trust is an entity, just like a corporation (or company), as an entity it is seperate from you.

Usually a trust is used to avoid have to pay the full 30% CGT that companies have to pay (individuals & trusts only have to pay 15%). It is also used for asset protection, as if you are sued personally it can be much more difficult (almost impossible) to claim assets from your tust. Usually you hace a trust that holds the property and a company as the trustee.

A LOC, is a Line Of Credit. It is where a bank allows you to borrow at a ccomparible low interest rate (compared to credit cards, etc) from your property’s equity very quickly. You have to set it up with the bank before you can use it. As you can imagine you can quickly put a deposit on a property without having to save up.

Rgds.
Lucifer_au

Sorry guys, but have to correct this. Super Funds pay tax at 15%. Trusts do not pay tax, but rather have to distribute all funds to beneficiaries (or unit holders if unit trust). The tax is then paid at that individuals marginal rate. Individuals tax rates vary from 0%, 17%, 30%, 42% and 47% – so no 15% for them either.

If the trust does not distribute all income at end of year, the trustee will pay tax on that remaining at 47%, so you are better off distributing it. If you have nobody left in the lower tax brackets, you could always have a company as a beneficiary, and they will be taxed at 30%.

WAF, to start a trust, I suggest you get hold of ‘Trust Magic’ from http://www.gatherumgoss.com for an understanding of how, why, what etc. And then talk to your accountant and/or solicitor to work out what would be best for you.

If you are only going to buy a couple of properties, then a trust is possibly not necessary (depending on your line of work, and possibility of litigation). If you plan on building an empire, a trust would be a good plan.

A Line of Credit is a loan against your property. Say the value is $200K. You could get a LOC for $160K. This then operates like an overdraft. If you spend money, you pay interest on that. If you don’t, you don’t. In the wrong hands (ie impulse spenders, bad money habits etc.) they can be a disaster. Speak to a mortgage broker. There could be other options that are just as good. Try Mortgage Hunter.

Cheers
Mel