Question about discretionary trust – negative gear

Terry is correct
You will get tax credits untill the trust makes a profit, then you will be able to claim the losses anginst any profit made.

I believe that expences before you purchase the property are not claimable. The costs incured from inspecting your IP’s are claimable.
Check this with your accountant.

CATA
Asset Protection Specialist
[email protected]

PTN

Losses cannot be claimed against personal income with trusts. If the property is owned by the trust, then the expenses have to be claimed by the trust, these cannot be claimed by the individual as they do not own the property.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

Some points

Discretionary Trusts that have -ve cashflow can not distribute a loss to the beneficiaries, however are accumulated over the life of the trust and offset any future income that the trust earns. i.e. if there is a loss in yr 1 of $2k and in yr2 of $1k but a gain in yr3 of $4k, then the Trust must distribute a net gain of $1k

Hybrid Trusts in theory will always make a profit as the unit holder borrows money to buy units in the trust. The Trust buys the IP’s debt free and gets the rent from the IP. The trust then distributes according to the unit holder. eg I borrow $200k @ 7% to buy units in the Trust. The Trust then buys a property for $200k and rents at $18k p.a. with property expense of $8k (Net Income = $10k). The $10k income is distributed to the unit holder and can be used to offset interest of $14k (200x 7%)

Banks don’t like Hybrid Trusts and borrowing is difficult..I have found 2 after 12 rejections – St George & Bank West . Can provide you with a broker who specialises/understands in Financing with Hybrid Trust…if this is allowed by Steve

I can recommend a book written by Dale Gatherum Goss

The $1k of travel is not tax deductable but could be capital when sell the property..need to check with a Tax accountant

the post acquistion travel of $1k is tax deductable but only to the % that you visit the property vs holidays…I suggest a diary and copy emails to the property manager showing the times that you visit the property…helps in case of tax audit…I suggest also a minute/note in the Trust accounts that you as a director of the Trustee is visiting the property on behalf of the trust (if the trust owns the property)

Hope this helps

Claude

Regards

Claude

I think you will find most banks are ok with Hybrids if the trustee is the same as the unit holder. You only get into trouble if the title is in one name and the loan in another.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

The hybrid trust is a unit trust and revenue must be distributed to the unit holder….so I would imagine that if you have the borrowing for the units in the Trust then you have would get the income. You can issue capital units and income units so your wife could get the capital gains from the sale of the property whilst you get the income from the rent (that off sets the interest of the borrowing). In our case my wife has 100 capital units and I have 450,000 income units…so I would get nil capital distribution (i.e. capital gains from sale) but all the net rental income.
Beauty about Hybrids is that if circumstances change, The Hybrid Trust can borrow money (if you get finance!!!) and buy back your units and the Trust reverts to a Discretionary Trust

I recommend Dale Gatherum-Goss’s Trust Magic….You can google it and see what web sites you get on the hit…I think he’s got his own website and is fairly highly regarded in the property investment industry

With all these, you need to check out your own circumstances and see if this type of structure works for you…My belief is if you have CF +ve properties then a Discretionary Trust will be better

I’m not a Tax accountant…(though I am an accountant) but got this info from Dale’s book and some other discussions with lawyers

Hope it assists

Claude

Regards

Claude

hi ptn

I’m not aware of an online site and wouldn’t recommend one.You should see a lawyer (one with property experience would be preferrable) and you can discuss the best structure for your circumstances.
If your heading down the Trust path you will need a company set up as the Trustee (approx $350 – $400) and the Trust Deed (around $1200). There are yearly ASIC fees and lodgement documents + tax returns, but this can be done by your Accountant. My wife and I do all the paperwork/Accounts / Trust minutes and provide the details to our Accountant to complete the return so I may be getting a good deal but pay about $400.

I can’t comment on BAS statements except income on residential properties (commercial properties / serviced apartments are different) are GST free and hence you can not claim the GSTon expenses…we have registered for GST in case a supplier does not quote their ABN and we are entitled to withold 48.5% of their fee..but thats just me…we lodge one each quarter but it shows nil GSt collected and nil GST paid

I recommend you speak to a Tax Accountant who is a property investor to review your particular circumstances and can recommend a structure for you / family.If you haven’t got one, try reviewing some of the posts on this site or create a new one if anyone can recommend one..also get as much info that you can from books etc so it’s clear in your mind…just make sure it’s all set up before you start investing

Hope this helps

Claude

Regards

Claude

You do not need a company set up as trustee, but this adds additional expenses. Cost of company is about $1000. Having yourself as trustee is free with no yearly asic fees, but offers slightly less protection.

Cost of discretionary trust is about $200+ online or $1000+ with an accountant.

Hybrids are generally not available online, but I think http://www.chrisbattern.com.au has them for about $1200+

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

Hi Terry

A trustee could be held liable for anything that happens inside trust as the trust can’t make decisions for itself. Yourself as trustee is far less protection than a company as trustee IMOP.

CATA
Asset Protection Specialist
[email protected]