OK. Ive heard alot about setting up a trust before purchasing property.
I already have one property and intend purchasing another soon and so on ..
My questions are:
1. What type of trust should I set up (its just me buying positively geared property)
2. Why even set up a trust?
3. Should all future properties be in a trust?
4. Who will the trustees be (if its only me involved)?
5. What are the tax and cost implications?
6. What are the advantages of a trust?
Hi Marty,
Definately one for an accountant who is Trust savvy – there are different Trust structures, some of which are more suitable than others.
There is an article in October 2004 edition of Australian Property Investor that may be of use to you.
Dale Gatherum-Goss wrote a book called ‘Trust Magic’ that is readale and sells for $99 and is available at http://www.gatherumgoss.com and then there is a book by Neil Renton called ‘Family Trusts’ that may be of use to you.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
I am not an accountant, but ….
1) A discretionary or a hyrbid trust. or a unit trust with units held by a discretionary hybrid trust etc
2) saves tax and for asset proection
3) yes, probably all except your final main residence
4) you?
5) Trust deeds can be pruchased for as little as $175. Some states also charge stamp duty. When doing you tax return, you will have extra expense of doing a return for your trust. This could cost $100+, depending on what assets the trust has.
6) tax savings and assett protection and flexibility.
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
I have been advised by my accountant to use a trust.
The property that I live in has a mortgage , the interest is not tax deductible.
I have an IP with no mortgage.
What I have been advised to do is create a Trust ( Which type I don’t know yet )
Sell my ip to the trust ( borrow all the money ) My accountant wants to change my IP from +ve geared to -ve geared
Use the money to pay my mortgage.Which leaves me with a negative geared IP with all the interest tax deductible.
Does this sound like a good plan ???
Hi,
Your questions were as follows –
1. What type of trust should I set up (its just me buying positively geared property)
A. You would set up a discretionary trust.
2. Why even set up a trust?
A. Asset protection. If you own the properties in your own name or in a company, creditors (apart from the bank from whom you borrowed money) could sue you and attack the equity in the properties.
3. Should all future properties be in a trust?
A. Do you want to protect your assets or not?
4. Who will the trustees be (if its only me involved)?
A. In Australia, as in most trust law jurisdictions, you cannot be the trustee of your own trust. You can be the guardian, and the trustee is supposed to respect your wishes. In New Zealand, you can be the trustee of your own trust – a most desirable situation for peace of mind.
5. What are the tax and cost implications?
A. If the trust makes a loss, the loss stays in the trust to be offset against future net income. A trust can be set up from $250 in Australia through ‘shelf trust’ organizations, and can go up to $4 000. Annual accounting is approx $400.
If the trust makes a profit, the net income is supposed to be distributed to the beneficiaries – you – otherwise the trustee pays tax on your behalf at the top marginal rate. You receive a tax credit when the a distribution is made to you. So probably best to distribute the net income each year, unless you’re at the top marginal tax rate.
6. What are the advantages of a trust?
A. Mainly asset protection plus tax optimization where family members are also beneficiaries – not under-age children unless in a testamentary trust, but that would mean that you were no longer on the planet.
Domo has a different problem. The purchase of properties has been done the wrong way around. The loan should have been used to buy an IP and have the PPOR mortgage-free. It’s a bit late now. New Zealand has an answer in an LAQC company, but Australia has no equivalent where the company losses are attributed to the shareholders.
My advice to Domo would be to sell the IP, use the funds received to pay out all or most of the PPOR mortgage – if the value is higher than the IP – then buy another IP with borrowed funds. Sorry, you can’t keep the IP that you have now. Are you sentimental about it? Rental property investment is a rational exercise, not a sentimental one.
And, if that was the best advice that your accountant could come up with, ask the other forum contributors for a rental property savvy accountant. If you take their advice, you will have a trust with a loss that you cannot use until it starts to make a profit at some time in the future. My suggestion will give you tax benefits from the time you put it into place. Don’t buy the new IP in the name of a trust. Buy it in your own name.
Christopher Raynal
Master Accountants Group Limited
PO Box 46018 Herne Bay
Auckland New Zealand
Ph +64 9 360 3259
Fax +64 9 360 2180
http://www.masteraccountants.co.nz
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