Advantages of using a company name.

Hi Ownahome

I agree that companies are separate legal entities. But cannot see how a campany can increase borrowing capacity. Virtually all lenders will require personal guarrantees from directors. This limits things. I am not 100% certain, but presume that on low docs the maximum exposure levels will include existing loans that the directors have as well as the companies. ie you do not each get a maximium exposure level.

True, but if you were using a trust in this instance, you would have the additional flexibility of distributing income to other benefificaries on lower tax rates – who would get the 50% CGT reduction. As a last resort you could distribute to a company to cap the tax rate.

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

Ouch. This is going to be hard. What if I have 2 trusts; a property trust that has our family trust as trustee? My wife and I and the family trusts will be the trustee of property trust and everyone can be in the family trust. That way, if we move trustee in and out, it’s not tie to anything.

Just thinking outside the square.
ptn.

Thanks Terryw, you’re right, it’s not like I am going to add or remove a trustee anytime soon anyway.

Regards
ptn

Hi CT

My understanding is that the loan needs to be in the unit holder’s name – which is not necessarily trustee. However, I have seen a few client come to me with it all setup incorrectly, they have the hybrid setup, but have the loan in the trustee’s name, so won’t have any tax advantages.

From what I have seen, if the property in creases in value, the trust has equity. The trust can then borrow more money for further investments. If the individual unit holder wanted to borrow more money, they would probably have to buy more units.

I am not sure of all the finer details of HDT as I am not an accountant and do not use one.

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

Hope this helps

It is a misconception that a Trust can pass back losses.

A trust can not pass through losses EVER, therefore a trust with a negative geared property can not pass through the loss where interest is higher than rent.

To get around the problem, you use a unit trust/hybrid trust.

The lender, lends the money to the person who will PURCHASE the units in the trust.

The Trust receives the Money for the ISSUE of the Unit, and buys the property OUTRIGHT.

The rent less any costs is sent back to the unit holder as income.

The person holding the unit who has borrowed money for investment purposes can claim the interest, against the income received (leaving a loss) claimable against normal tax.

The Lender takes both the unit and property as collateral.

Now after saying all that – the above is what is normal for the majority of trusts setup. But Chan and Naylor do say they have a Property Trust, that possibly could avoid that. I have never used it, or exactly know how it works, as it is something they will not tell you. Of course they will do what they need to if you use them as accoutants. (I have no affiliation with them)

I will add there are many aspects to using trusts (Even the above can have capital gains issues if you don’t know what you are doing) – you should always have a good accountant, that really understands trusts.

Regards
John

Inspired Finance
(02) 9944 7776

[email protected]
http://www.inspiredfinance.com.au

CT

With a trust the banks only need to take the security as collateral. Same as without a trust. Some banks also want to take a charge over a company if a corporate trustee is involved too – pain the the butt, but I don’t think it affects things much.

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 all

I’ve done a search on the forum, one post maybe of interest along this line;

Urgent Help Needed – Title and Loan in Different Names.

Sorry as I tend to jump in and get off the topic at times.[wink]

CT

Hi All,

Following your advice to research more, I bought a book called ‘Family Trusts’ by Nick Renton (as recommended in previous forum). I have to admit the first 8 chapter are boring or going around in circle (a drag). I hope the next few chapters will pick up.

From what I understand so far, trust isn’t giving me any advantange at all apart from asset inheritant and some degree of protection if I die … which a will will solve this problem. But if I am making a loss (negative gear) then a trust will cost cost me more for administration. Options are HDT (next chapter)

It seems that only when I make a Positive cash flow can I distribute the money acordingly. Further more, I am restricted in what I can gift and what must be declared.

Can someone please let me know if I can do any of the following if I have an +CF; I can buy a car in the trusts, take a holiday and claim it as a trust expense, rent a house and claim it in a trusts? Can I pay my kids education from the trusts? Can I pay the nanny for taking care of my kids from the trusts?. …. I got a feeling I can’t.

As Nick said, if you’re not confused, then you’re paying any attention.

Confused
ptn

Thanks TerryW; for your positive respond.

I am curious, can you claim capital depreciation from HDT?

Thanks
regards
ptn

Hi TerryW,

Just wondering,

The trusts purchase a new house for $300k. There is an $8k depreciation schedule p.a
Assuming there are 1 x Trustee (Husband) + 3 x Beneficiaries (Wife + 2 kids).
Let’s say I create 300k units in this HDT to buy this house.
Let’s say the rent is $300pw ($15600pa less agent)
Let’s say the interest at 7.5% = ($22,500pa)

Scenario #1:
Trustee gets a loss + depreciation of $14,900pa.

Scenario #2.
The income gets distributed to all beneficiaries and nothing to the trustee. Trustee claims $30,500 loss (Ints + Depr). Sounds too good to be true.

Scenario #3.
The income gets distributed to all trustee + beneficiaries. Trustee claims a $22,500 in Interests. The depreciation is ignored.

Or Scenario #4.
Trustee gets a loss of $6,900 only.

Thanks
ptn