Hi,
To get clarification.
I am loooking to buy our first PPOR in place using FHB, since it is a too good offer to give up.
Over 12 months, set up a Hybrid Discretionary Trust. After the year is over move out,sell it to a Hybrid Discretionary Trust for a bit more (to save on CGT, or a bit less to save on SD), move out, rent it as a IP.Rent the next place, from the same Hybrid Discretionary Trust which has purchased it as an IP.
This way the Trust is using the places as Investments and not just as tax avoidance.
Being self employed sometimes is going to be tricky, might look at the Trust owning the business. Will have to work that out. But over 12 months in the FH, a conclusion should be able to be met.
If you think it is silly let me know why?
Why purchase in your own name if you are going to just transfer to a trust. You may save $7000 by getting the FHOG, but it could cost you more in stamp duty and legals to transfer it.
Also by living in it you get a CGT exemption if you ever sell. You could rent it from your trust, but must pay market rent. This will mean after a few years the property may become positively geared and your trust will be making a profit and you may have to pay on what is essentially your home.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry,
I get what you saying and need to clarify on.
Stampduty costs of Transfer is substantial, but Tax benefits, from interest, furnishings, will mean that I and my partner can be one step ahead.
As I know it and please tell my if I am wrong, as the property becomes +ve geared, the tax profit will be geared to my partner who is on a lower wage.
I guess the idea is IP, and not to ever sell….
Please comment [suave2]
Hi Jbro,
just set up our own family trust to invest through and am a little bit fresh (yet still confused) after the visit with the solicitor.
I’m not sure about other states but in QLD if you bought first in your name for you to live you get a big discount on stamp duty which is good. When you transfer ownership to the investment vehicle, the stamp duty you will pay will be almost double.
Just a thought.
Matt[medieval]
#@$
Yeh Matt,
Cheers for that… Your right about the confusion.
Stamp Duty Savings are 100% in NSW for property 500K or less.
Just can’t beleive moving over to a investment vehicle would incur a double stamp duty.
Is it because you are transfering. If the property was bought by the vehicle straight from the shelf, would it be different?Trying to way up the advantages. I mean allowing you to use high income earner within the trust for times when the investments are negative and low income earner when positive can result in huge savings over 15 years or so, depending on salaries. These hopefully definitely out way CGT and I HAD hoped stamp duty.
Hi Jbro
By double stamp duty, I think Matt means once on the initial purchase and then again when transfering to the trust.
If you buy under the fresholds, then you would be saving stamp duty on the intial purchase, but will pay it on the transfer to the trust – the benefits cancelling each other out. The upside is you would be getting the FHOG.
I think the long term goal should be to own your own property outright so that you are not paying rent and have a CGT free asset.
What about just buying your home, living in it for 12 months and then buying another house in the trust. you could move into this one and then rent it from the trust, and keep the old one rented out, using the 6 year CGT exemption rule to keep it as your main residence. Later you could sell this one CGT free or just keep it and move back in when the trust property becomes positively geared (meaning you will be paying tax on the rent). Just a thought.
Terryw
Discover Home Loans
North Sydney
[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
Yep thats right Terryw.
The stamp duty is payable because you are transferring ownership of a property title from one entity to another, whether that is a person, company, trust etc.
Again, I don’t know if it is a QLD thing but you might want to talk to your solicitor/accountant as I remember there being a reason that we couldn’t or wouldn’t do the same thing – to live in the house that our trust owns.
Anyone??
Matt[medieval]
#@$
Matt, I think you’ll find that the issue with the trust owning the house you live in is if it’s a unit trust (or HDT), and you make a loss – therefore claiming tax back against your own property…
If it’s a discretionary trust, you cannot benefit personally from that loss, so it’s not an issue….
Cheers
MelTerry,
Sounds like the right sort of approach. I think I will even buy the second place and rent it out via the trust before moving in. Soas not to rasie any alarm bells.
Mel, I am receiving Trust Magic next week in the mail and in regards to HDT, I am of the impression that it is a discretionary type trust. So loss or gain can be directed towards the trust. Thus any monies being put into the trust from the directors can be classed as taxable income to trust and a loss to the director that is supplying the income.
I could be very wrong, as I have only been reading forum information, could you verify?
Thanks Jeff
Jeff,
Originally posted by jbro:Thus any monies being put into the trust from the directors can be classed as taxable income to trust and a loss to the director that is supplying the income
I believe the idea is that you would lend money to the trust, in which case it is not taxable income and not a loss to the person lending it. It stays on the books as a loan which could eventually be paid back.
And trusts don’t have directors – companies do.
GP
yeah GP.. lend money to the trust or inject capital as in operating a business – your investment business. The money can be paid back easily to you, or another entity.
Another interesting point I found out was that if you make a loss in your trust you can carry that loss forward until you make a profit so you still keep the tax benefit – I had heard the contrary.
Interesting what you find out if you ask the right people.
Matt[medieval]
#@$
Matt,
Your right it is interesting when you speak to the right people.
Have now found out, this is an excellent opportunity, which might need an extra bit of work, but really, I want to get away from the negative gearing persona and create a good portfolio, using my family, this seems definitely the way to go.
Distribution of income, by differing trustee’s buying back income units from other trustee’s. Security of investments.
Monies can be paid into the trust as Gifts or Loans.Now going to read the book. Hopefully wont confuse me. I do insist at the time of drawing up a plan, a dedicated accountant/adviser for trusts is the way to go, even if it costs a bit.
A HDT can be both sorts of trust. If you borrow the funds to buy units in the trust, then rent the property from the trust, and claim a loss on your tax – that is the bit the govt doesn’t like.
If, however, the trust buys the house, and borrows money from you (in the ‘normal’ way, ie no issuing of units) and the trust makes a loss, then it will carry it forward until it makes a profit. This, I believe is acceptable, as you personally are not making a gain from ‘negative gearing’ the house you are living in…
As always, speak to a competent tax professional.
Cheers
MelThe tax ruling on renting from your unit trust is:
TR 2002-18 – “Income tax: home loan unit trust arrangement”Available from:
http://law.ato.gov.au/pdf/tr02-018.pdfTerryw
Discover Home Loans
North Sydney
[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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
