Calvin
Yes you are there!
In actual fact, the bank will not lend you money to buy units in the trust. They will only lend to buy property. They will, but they probably don’t realise they will!
The banks just give you a loan, secured by the property. You then simualtaneously buy units, and the trust buys the property. The bank is not actually aware of the finer details. They may not even know the units exist.
Terryw
Discover Home Loans
Mortgage Broker
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
Turn your own home into a IP.
Here’s a (non original) thought.
You could “Sell” your PPOR to the HDT.
(at market value for “arms length”)
(costs = refinance costs, stamp duty etc).Then once the entity owns it, rent it back
(at market value for “arms length”)This turns it into a tax deductible asset. Kiyosaki be blowed!
Then if you move on, it is already an IP and you can rent it out straight away.
Pros:
+ Tax deduction on interest of PPOR loan
+ another “boat” in the water
+repairs are before tax.
+The renters are good and pay on time,
+plus maintain the place just how you would
Cons:
-If sold again, the HDT would pay full CGT.
-(lose the CGT waiver for PPOR)
– Must maintain arms length.Thoughts?
alwayscurious.Ahaaa!
Cheers Terry. What if we took it a couple steps further (I have been discussing this with Alwayscurious):
Whooops, he beat me too it!What if instead of you renting it, a company that you owned rents it, and you live in it for free – kind of like a fringe benefit!? If leagal it would negate some of the cons mentioned above!
Terry your thoughts?
Cheers
C@34
Another two negatives the HDT will pay land tax and if the property is located in NSW will be subject to the vendor duty.
Taxation Ruling TR 2002/18 talks about home loan unit trust arrangements and so the ATO would probably attack you there. There are a few lawyers around that advocate that provided the arrangement following the Janmor case then you can structure it so that your home loan will be tax deductible however you will also be liable for CGT on sale (no main residence exemption), land tax and vendor duty so the short term benefits may not outweigh the long term benefits from holding your main residence in your wife’s name.
With respect to a company owning and then providing it as a fringe benefit unless market rent is paid it will be considered to be a housing fringe benefit and the company will be liable for FBT.
Terry, with HDT I will need to distribute unit trusts to beneficiaries. Do I need to specify how much units each beneficiaries will get. Will the income (rents/dividends) have to be distributed at the specified proportion each year? If this is so than it’s no way as flexible as discretionary trust but has the benefit of being able to get borrowing deduction (buying special unit).
If an IP is purchase by a trustee under his name not trust name what stops the trustee from selling the IP outside the trust?
Opened up a can of worns here, didn’t we!?
Cheers
C@34
Originally posted by zen1:Do I need to specify how much units each beneficiaries will get. Will the income (rents/dividends) have to be distributed at the specified proportion each year?
To the best of my knowledge, yes and yes, although the latter has a “but”.
The units in an HDT or unit trust provide a fixed entitlement to income from the trust, which is what allows the interest deductions when borrowing to buy them. The number of units purchased has to be specified when they are bought.
Income has to be distributed pro-rata across all the unit holders, but only the proportion of the total income that matches the proportion of trust asset value represented by the unit funds (although you should check the trust deed for what it says).
So if $100K of units are bought and the total asset value in the trust is $200K, then only half of the total net income has to be distributed back to unit holders. The rest can be discretionally distributed.
However, this is just my understanding, so you should check your trust deed and get professional advice before acting.
GP
alwayscurious
Another pro: You could rent the house to yourself furnished and then claim decpreciation on your big screen TV etc.
Another Con is Land tax, and you would have to pay your trust market rent, so over time it would become cashflow positive.
It may be a good idea if you only intend to live there for a while, but if you intend the property to be your final residence, then losing the CGT exemption would hurt too much.
Terryw
Discover Home Loans
Mortgage Broker
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
Originally posted by zen1:If an IP is purchase by a trustee under his name not trust name what stops the trustee from selling the IP outside the trust?
Nothing I guess except the law!
Terryw
Discover Home Loans
Mortgage Broker
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
Originally posted by Terryw:alwayscurious
Another pro: You could rent the house to yourself furnished and then claim decpreciation on your big screen TV etc.
Another Con is Land tax, and you would have to pay your trust market rent, so over time it would become cashflow positive.
It may be a good idea if you only intend to live there for a while, but if you intend the property to be your final residence, then losing the CGT exemption would hurt too much.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Fantastic. So if this house is seen anyway as a “Stepping stone” then it would be a good thing to do from that angle.
Secondly – re land tax – is this payable immediately or is it once the portfolio of the entity reaches a certain $ amount per state?
I believe that is the way land tax is for real humans, is it the same for other entities or is it payable immediately.
Cashflow positive? Not such a big drama for this forum I think
can always distribute earnings to lower income partner. Children under 16 I understand attract a savage 66% tax on distributions..Terry, like your idea about the furniture. I don’t think one of the trustees would approve of the big screen TV – I think the court battles wouldn’t be worth it though
Cheers All. Off to pick my accountants brains over lunch on Wednesday (my shout) – will take this thread with me.
AC.
Over a nice lunch (not just liquid mind you!!) I talked with my accountant. A great way to pick someones brain and be guided away from dangerous assumptions…
Amongst other things, I floated the idea of selling my house to a trust and renting it back. Short answer: No.
The ATO looks very dimly on this they issued a warning to accountants late last year in fact – as the anti-tax avoidance laws state all transactions must be undertaken for a valid commercial reason – not JUST to avoid tax. They would view the sole reason of this is to turn a non deductible debt into deductible, and therefore would classify it as tax avoidance. Essentially they are right, the only reason I would want to do it is to avoid non-deductible debt.
My accountant said – it is like waving a flag to a bull and saying “Audit me!!, Fine me!!” which no one wants.
If it was done for a valid reason, like this example:
I am going to move to another house and want to turn it to an IP, and sell it to the trust, and then rent it to someone else –then it would be kosher.
I am still going ahead with the HDT with limited liability company as trustee for asset protection – can still do neg gearing within it, using the purchase of special units type. This is perfectly legal and kosher.
NB – loan in my name, I buy units from trust, company as trustee for the trust buys the property. All this settles simultaneously, so as far as the bank is concerned – they lent money to buy a property.
I will be a shareholder of the company, and so will my wife, $2 shares issued, and I will be a director of said company.
It will cost me about $2300 or so to set up with a valid trust deed.
Ongoing costs – tax filing, asic company filing etc etc.
I will set it up to do various asset accumulation with as we are about to enter a buy phase.
Cheers,
alwayscurious
can always distribute earnings to lower income partner. Children under 16 I understand attract a savage 66% tax on distributions..You must be logged in to reply to this topic. If you don't have an account, you can register here.
