Hi all
my fiance & I would really like to buy our own home (we have other investments and a deposit for another property, but are currently renting), but the house prices in Sydney are really painful!
We were thinking of purchasing through a trust structure and renting from the trust, so we can negatively gear our own home – we know about the downside to this (loss of PPOR, CGT, land tax etc.), but this is the only way we can really afford it.
Has anyone else done this effectively? I am self employed (less than 1 year), so I’m basically a liability and a LoDoc loan won’t be enough LVR for what we are looking to purchase. My fiance is PAYG – what we really need is a structure that allows 100% of the losses to be passed onto his income / tax return and for his details only to be on the loan application: is this possible?
Any comments or info would be greatly appreciated.
Have a great day!
AnzionIt won’t work in a discretionary trust as losses cannot be offset against other income. So the trust would need other income or your losses would just sit there until the trust made income in the future.
The ATO has also looked at this structure using a unit trust, have a look at:
TR 2002-18 – “Income tax: home loan unit trust arrangement”
Available from:
http://law.ato.gov.au/pdf/tr02-018.pdfTerryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Anzion,
Any way that you try to cut it, any attempt by whatever structure to purchase a family residence and claim the expenses (or excess of expenses over income), is doomed to failure. The ATO would rightly regard the dominant reason for the arrangement to be tax avoidance, and strike it out.
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.nzHi
If you do this you may well stuff yourself up big time with CGT. Only the PPOR is CGT free when you sell it. If you treat it as your own home but buy in the name of a trust, you wont get a CGT exemption when you sell it, as you dont personally own it.
Hi,
The last comment was correct to the extent that there is not a 100% CGT exemption when the family home is owned in a Trust. However, the Trust would still be able to claim the 50% CGT exemption where the beneficiaries of the Trust are the same family members living in the house.
It looks like the ATO doesn’t want families to own the family home in a Trust. Or perhaps they do want you to have asset protection so they can be paid CGT on the sale of the family home – if purchased after July 1985, when CGT came into effect.
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.nzChris,
In Australia I’ve had different advice re buying a home in a family Trust (HDT in our case) and then renting the home from the Trust on a long-term lease. In our case we won’t live in the house for a few years, but this was not in my understanding something that made the above possible.
The advice is only a month or so old and has come from a prominent accountant that posts on this and at least one other forum.
I’m no accountant, so I don’t know who is right or wrong, (and perhaps it’s not that black and white), however, clearly some different views out there, and perhaps worth some further investigation anzion.
Regards,
Ralph
Hi Ralph,
You have not actually said what advice you received from the other accountant or what the conflict is.
In the absence of that, there is nothing preventing you from buying the family home in a Trust and renting it to yourselves.
There just won’t be a tax claim available where the rent received is less than the expenses. In any event, the Trust can only distribute net income to beneficiaries. It cannot distribute losses to the beneficiaries.
If the rental income is higher than the expenses, why would you want the Trust or the beneficiaries to pay tax on the net income? on a family residence?
If I have misundestood your line of argument, please post it to the forum and I will reply.
If you do not wish to post confidential details of your plan to the forum, you may choose to send them to me in a private mail. Your right to privacy will be respected.
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.nzchris in My Understanding (from what i’ve read only) the structureof a Hybrid discretionary trust is such that you can distribute losses, that wasthepoint of the structure?
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorOriginally posted by redwing:the structure of a Hybrid discretionary trust is such that you can distribute losses
No, even a hybrid trust can’t distribute losses.
The way you can negatively gear with a hybrid trust though is to borrow in your own name and then buy income units in the trust. That way the trust actually makes a profit, since it doesn’t have any loan interest to pay back, and can make a distribution to you. That distribution would be less than the loan interest and so you personally would make a loss which can be offset against your other personal income.
So even though the property is negatively geared, the trust itself is making a profit.
GP
Thanks for that GP,
I know that you have posted that information earlier, and probably more times than you care to remember. As new members join, they may come up with the same questions as others. It is too hard to look back on all the question on the forums.
This still leaves the question unresolved of whether the loan taken out in the taxpayers’ own names can be said to be for an income-producing activity where the taxpayer is living in the house as a principal family residence, in essence if not in form. The answer to this question dictates whether or not the loan interest is or is not an allowable tax deduction.
That is to say, they can say it is a rental property investment. However, if they reside in it, it is deemed their PPOR by the ATO. And it is the ATO that will determine if the tax claim is allowable or not.
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.nzChris,
While I don’t know for sure, I tend to agree with your earlier comment that any attempt to claim deductions against your PPOR – even if you are technically renting it – is likely to fail.
I would imagine the ruling Terry posted regarding unit trusts would also apply to hybrid trusts – since in essence they’re also unit trusts if units have been issued.
Cheers,
GPHi all,
You can still purchase your family home in a discretionary trust and claim interest and deductions provided the rent being paid is at a market rate. My experience has been that this is more trouble than it is worth.
Unfortunately the tax rules disallow you from claiming an individual tax deduction via a unit trust arrangement.Cheers,
Mark Unwin
Williams Partners Pty Ltd
http://www.wp.com.au
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