I’m interested in understanding the advantages of setting up a Trust for property investment. I have two investment props in my own name and am currently looking to add. I spoke to my accountant who dismissed the idea of setting up a trust as a waste of time and money.
What are the pros for investing through a trust? Do those with multiple properties do it in there own name?
Thankyou
My advice is speak to an accountant that understands property investing. That’s exactly what I just did this very day with Gatherum-Goss in Melbourne and I got some excellent advice regarding setting up a Hybrid Trust for our investment properties. Mind you our “former” accountant sounded just like yours – you need to do the research over the web, talk with a good Solicitor and Accountant and if all else fails get a hold of Steve’s CD set Wealth Guardian, that explains your options really well. It is a bit to wrap your brain around to start with, but once you understand it all – it’s the only way to go, imo. Cheers[thumbsupanim]
Hi Razor Ray,
I’d have to agree with bjb007. I also own 2 IP’s and intend to add another very soon and a short while ago I saw Dale Gatherum-Goss. I found him to be patient enough to listen to all my ‘dumb’ tax questions (Can I claim my pet pointer as a security dog?) and he gave some excellent advise and material to take away re: my property questions to read. Dale also gave a few ideas on how to mitigate liability exposure with one property without the use of a trust. I felt like I may have wasted his time but he didn’t charge me and ‘actively’ listened. I would highly recommend him.
Regards,
Gatsby.Cheers,
Gatsby!Razor Ray,
Dale’s book “Trust Magic” is worthwhile. You can read about it here:
I also found Nick Renton’s book on trusts good. The latest edition has only recently been released.
GP
Trusts can be great structures, however it is crucial that you understand them. In some cases one would be better off investing the $2000 odd that it costs to set up the trust. When I set mine up, I asked myself: Do my assets really need protecting i.e are they substantial enough for someone to want to go after? Can I afford the cost of setting a trust up and maintaining it? Do I have an adequate team to draft a trust deed etc.
To those who have spoken to Dale GG, did you use him to ‘set-up’ your trust, or solely for advice ??
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorI have found a new online trust deed provider with discretionary trust deeds available for about $135.
http://www.cleardocs.com.au.I have a client who used them recently, and their deeds seem to be comprehenisive.
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,
Razor Ray’s initial question concerned the advantages in setting up a trust. Although the replies have been interesting, I felt some detail was missing.[blush2]Are trusts always the optimal solution? Are there any negatives associated with trusts. I have heard about hybrid trusts — what are they?[worried]
This afternoon I ordered Dale Gatherum Goss’s publication on trusts and will purchase a copy of Nick Renton’s book. But in the interim I really would welcome some tales from the trenches in terms of your experience with trusts. Are they worth it. Have they proved tax effective. Any and all thoughts would be welcome.
Thanks.[cap]
Elika
I will be setting up a trust for future IPs and joint ventures and here are my thoughts on trusts.
As far as I know you need to pay for :
1. Setting up a trust (accountant can charge up to $2000) or (do it yourself online for as little as $135)
2. A separate tax return each year for each trust (if accountant does it)
3. Possibly extra paperwork when applying for finance (My accountant said about $500, but I keep my own accounting software up to date so i will try to provide this myself)
4. Legal advice as per suitability of trust. (Accountant charged me $500 just for explaining and chasing up questions about trusts).
I also have a company which I will use to distribute trust profits to utilise 30% company tax rate. The company set up can cost upwards of $1500. Annual tax returns prepared by accountant can cost $500 and over.
I dont think trusts are as beneficial if:
1.If you are taxed at less than 30%
2. Properties arent making cash profit (negative geared for instance)
3. You only have a few properties
4. If you don’t have people or companies to distribute profits to that have a lower tax rate than you.
I’m no expert of course, just learning like you.[curtain]
lifexperience
Hi LifeX
thanks for the information. Obviously a lot more to think about than I had anticipated.[blink]Thanks once again,[biggrin]
Helen
Elika,
Trusts can be used for negative gearing purposes. That’s what hybrid unit trusts are for.
I would NEVER distribute from a trust to a company.
You have to be earning a relatively high level of income before income tax goes over 30% of your total income.
Companies get taxed 30% on every dollar. So unless your income is very high & you’re not using various paper losses to reduce the distribution amounts from the trust, you’re better off in most cases not distributing to a company from a trust. You’re better off distributing to humans.
Trusts let you divide the income between beneficiaries – your partner, kids, parents, etc….reducing tax & making them a useful estate planning tool.
Trusts aren’t only for tax purposes – in fact it’s one of their minor uses. They are also very useful for risk mitigation.
Using a Trust you can silo assets in vehicles that are very hard to sue (best to use a corporate trustee).
This preserves your assets should you get personally sued for any reason.
It also helps in bankrupcy matters.
Read Dale’s book and you’ll get a far better understanding of the types & uses of trusts. Then ask any questions that remain.
Cheers,
Aceyducey
In theory, there is no difference between theory and practice. But, in practice, there is.– Jan L.A. van de Snepscheut
I noticed that a lot of people here recommend Gathrum Goss for accounting. In particular, the big boss, Dale.
I am fairly sure that Dale can’t possibly see everyone and in all likelihood he prob charges an arm and a leg.
Has anyone dealt with other less senior people in the firm ? Are they almost as good as Dale ?
Acey,
Acey, why wouldn’t you ever distribute to a company? What if you had no other beneficiaries left under a 30% tax rate. ie: single high income earners. (is it because of the difficulty of getting money out of a company without being taxed?)
Do you think that the risk mitigation benefits you mention will remain long term? Are the government not trying to clamp down on the use of trusts for this reason?
lifexperience
Originally posted by lifeX:What if you had no other beneficiaries left under a 30% tax rate.
Remember though that it’s not the marginal tax rate that counts but the average tax rate. A person can earn around $70K a year before their tax payable is higher than a company’s.
If all the beneficiaries are earning much more than this though, then I think distributing to a company might be okay provided it’s only income or capital gain on assets held for less than 12 months. For capital gain on assets held for more than 12 months the top tax rate is only 24.25%, which is less than the company rate.
One problem with building up cash in a company is that to get it out you have to declare dividends, and dividends have to go to shareholders. If the shareholders are still on high incomes, then they’ll have to pay the extra 18.5% tax anyway. And while it’s possible to have a low income earner as a shareholder of a different class of share, where dividends don’t have to be distributed evenly between classes, there are anti-avoidance provisions to do with dividend streaming to be wary of. Basically companies aren’t very flexible when it comes to distibuting retained profits.
Note though that I’m not an accountant and this is just my understanding and personal experience.
GP
Originally posted by lifeX:Acey,
Acey, why wouldn’t you ever distribute to a company? What if you had no other beneficiaries left under a 30% tax rate. ie: single high income earners. (is it because of the difficulty of getting money out of a company without being taxed?)
Do you think that the risk mitigation benefits you mention will remain long term? Are the government not trying to clamp down on the use of trusts for this reason?
Why not to a company?
OK – how do you then get the money OUT of the company….pay dividends…taxed! pay salaries…taxed!
Why get double taxed?
Look at the effective income tax rate, not the progressive rate.
When you earn $80K a year with no deductions you pay $24,407 tax – or a smidgen over 30%…at $100K you pay 33% tax. Get a few deductions & you’re paying an effective tax rate BELOW that of a company.
As to the long-term tax effectiveness of Trusts…I apply the Politician & Influential People rule.
If politicians & other influential people use a particular legal structure there is a low likelihood of that structure being made illegal.
Whilst pollies & heads of industry make extensive use of Trusts, I’m very comfortable using them.
Cheers,
Aceyducey
In theory, there is no difference between theory and practice. But, in practice, there is.– Jan L.A. van de Snepscheut
Originally posted by Aceyducey:OK – how do you then get the money OUT of the company….pay dividends…taxed! pay salaries…taxed!
Why get double taxed?
The way I see it…
You’re not being double taxed with dividends, as the company tax paid gives a franking credit. You’re only paying the extra tax that brings the company rate up to your personal rate – which is the same rate you’d pay on an income distribution from a trust. You’re only losing on the deal, relative to a trust, if your income is low enough that you can’t get all the benefit of the franking credits.
What you are losing though is the flexibility to distribute to a low income earner, unless they’re a major shareholder.
And salaries aren’t taxed in the company if they come from income in the same year (other than the standard PAYE tax). They’re no good for reducing retained profits though.
GP
Found this when searching trusts on PI..
How many of you out there are using the Trust Structures to purchase your IP’s / shares etc ?
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorNot yet and won’t for my first property either, basically because my personal situation doesn’t need for one as of yet. But will do in the future once I structure myself and my finances appropriately.
And as for the type of trust, well I plan to use a ‘$1’ company as trustee but am not sure of what type of trust I will use. I’ll work on that when the time comes.
Cheers,
Jacob.‘Stay Happy and you’ll be Perfectly Fine’ – Jack
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