All Topics / Help Needed! / Benefits of Unit Trust V’s Individual Names in JV deal

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  • Profile photo of DobbyDobby
    Member
    @dobby
    Join Date: 2005
    Post Count: 37
    June 3, 2007 - 11:28 pm

    Hi,

    Myself and 3 other investors are looking to purchase a block of 4 units to strata title and then some investors will sell (after 12 months) and others will keep one unit each.

    What are the benefits and disadvantages to purchasing the block in the name of a unit trust with each investor holding one unit in the trust i.e. 4 units in total?

    Two disadvantages to purchasing in the unit trust I see are:

    1. Won't qualify for the 50% reduction in CGT after the asset is held for 12 months (as would be the case if held in individual names).
    2. No ability to claim negative gearing within a trust i.e. if all costs are greater than rent coming in we can't offset the difference against other income earned as would be the case if we were to purchase in individual names.

    Would somebody please clarify if the above disadvantages are correct and outline any other issues and advanatges to the unit trust path.

    Thanks

    Profile photo of MortgagemanMortgageman
    Participant
    @mortgageman
    Join Date: 2004
    Post Count: 164
    June 4, 2007 - 12:46 am

    Hi Dobby,

    One drawback of a unit trust is that it will make it exceedingly difficult to fund your deal as a residential loan. If you used another form of trust, company or your individual names you should be able to get a residential loan for your project, which would greatly reduce costs.

    Kind Regards,

    Cameron Perry
    Director
    Perry Financial Strategies
    Level 13, 30 Collins St
    Melbourne VIC 3000
    Ph (03) 9662 1999
    Fax (03) 9662 2044

    Profile photo of DobbyDobby
    Member
    @dobby
    Join Date: 2005
    Post Count: 37
    June 4, 2007 - 3:43 am

    Thanks Mortgageman. Do my other 2 disadvantages also hold true?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    June 4, 2007 - 9:42 am

    Hi Dobby

    I don't know much about unit trusts, but think you are correct. I think the CGT reduction isn't available for unit trusts, but is with discretionary due to the flow through effect.

    WIth the other, I think you may not necessariy be correct. The unit holders are able to borrow to buy the income producing units. So they could personally be able to claim the interest for the loan. This should leave the trust with low expenses and a profit (it rental income is coming in). From this profit, other deductions could be claimed and then the profit distributed to the unit holders.

    There are stamp duty implications if some partners wish to sell and others keep, so I think you need professional advice on this one – many other things to consider too.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of DobbyDobby
    Member
    @dobby
    Join Date: 2005
    Post Count: 37
    June 5, 2007 - 10:45 pm

    Thanks Terry. Looks like I need to sit down with an accountant. Unless there is a guru accountant out there who can post a clear and succinct breakdown of the pros and cons of unit trusts?

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