Hi,
I'm confused and wonder if anyone can enlighten me on this topic. A couple of years ago I started doing developments with a business friend and the accountant that we used (who had been recommended to us as he was an active property investor and developer himeself) advised we set up a Unit Trust, which we did. We have now changed accountant as the previous one was never available and charged a lot of money for service we didn't feel we were getting. Current Accountant has shaken his head in horror, says he hates Unit Trusts (not exactly sure why. he did try to explain but not in a way we could understand) and has advised that prior to our next development site purchase, we should be looking to set up a partnership of trusts instead.Currently my business friend and I derive our only income from our developments and money that has been injected into the business ie Unit Trust has come from personal funds (through a discretionary family trust in my case)So before jumping in I was interested to see whether anyone on the forum has had experience of these types of set up.Our business model is to continue with the developments and running several concurrently.Our new accountant has explained that the money we have previously put into the business as Unit shares will now incur stamp duty if we own property at the time of selling the shares which of course is likely to be the case as we are either starting a new development of finishing one at any given point in time.I appreciate any comments.ThanksHi Jebro
That is interesting, and I would like to find out his reasons for recommending a partnership of trusts rather than a unit trust. I am not sure what the difference would be as you could have a unit trust with 50/50 units owned by your own discretionary trust. This would seem to be the same as two discretionary trusts jointly owning a project.
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
Hi Terry, it is all rather confusing.
The main difference that I can see is that Money contributed by either party in a Unit trust is converted to Unit shares. In a partnership of trusts funds contributed remains just that.I’m still none the wiser as to why he wants us to change structure and of course this would incur further costs.Wishing you a Happy Christmashi Jebro
Maybe is is just a revenue raising exercise!. Funds contributed to either structure. could be a loan to the trust,
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
I would suspect that yes funds contributed from the partnership are deemed as a loan and hence can flow back without triggering extra tax.
I use partnerships for several of my entities, most of which are partnerships between two family trusts and this is how we treat injected monies.
Thanks for your comments Phil, they are much appreciated. I think that because we may need to inject further money this is why the accountant is suggesting we consider changing structures.
Hi Jebro
We recommend a partnership of unit trusts over a single unit trust when you have unrelated parties and there is a possibility of building a capital value of the underlying business (that can be sold in the future). The reason is a sale of units from one unit holder to another puts the seller at a disadvantage tax wise as not all of the small business capital gains concessions are available. This is straight out of recent NTAA "hotspots" and "trust" seminars.
It doesn't suit all situations and can be tricky when you have regulatory bodies requiring licenses ie state based building license and HOW insurance as they don't like these structures but we have used nominee companies to skirt these issues and you don't have to have everybody to sign docs (especially when you 8 to 10 owners and getting them all on the contract to sign).
Finally, I would ask your new guy to explain, in laymans terms, the specific reasons why he wants you to change and then YOU decide which way to go.
Good luck
Tony
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