Advice Needed - Company/Trust structures & further investment

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Adam 2912
Participant
@adam-2912
Join Date: 2008
Post Count: 3
February 16, 2008 - 8:38 am
1. Last year my sister and I formed a Pty Ltd company to take over as trustee of a family trust to which we were beneficiaries.
  The trust owned an IP in NSW worth arount $300K which is returning around $18K p.a in net rental income.
  The IP is owned outright – no monies owing.
  At the same time I was in the process of puchasing my first home and wished to use some equity in the IP to help with the purchase of my home. (mainly to avoid paying LMI)
  The trust deed for the family trust was written in 1960 and had clauses prohibiting me (as a beneficiary) from using equity in the trust for personal gain.
  I was advised by my solicitor that the trust deed could NOT be amended to remove this clause.
  We ended up forming a new Discretionary trust with the company as trustee and my sister and I as beneficiaries.
  The transfer of title of the IP (from the old trust to the new trust) was deemed as a sale and attracted stamp duty.
  We were aware of the stamp duty prior to doing this and were willing to pay this in order to have a trust deed that gives comprehensive powers to the trustees therefore benefiting us in future investments.
  Unhappy with our accountants at the time we switched to a new accountant which tells us when we do our first tax return we will be liable for CGT also.
  I the new accountant right?
  How can we reduce our personal income tax with the setup we have?
2. I earn $100K p.a and my sister $70K p.a both with little in the way of work related expenses/deductions
3. Should we invest further (put the trust into debt) to gain tax deductions?
4. Any advice or knowledge will be greatly appreciated.
Cheers
Adam
Terryw
Participant
@terryw
Join Date: 2001
Post Count: 16,213
February 17, 2008 - 11:36 am
Hi Adam
You should get another opinion on changing the deed maybe as there are huge costs with stamp duty and CGT involved.
Usually if you transfer (sell) an investment property from one trust to another, then there would be stamp duty and CGT – if there is a gain. but CGT only applied to properties purchased after a certain date – around 1986(?). So if your deed dates from 1960, then the property may have been purchased prior to this and may be exempt.
Check out http://www.lawcentral.com.au and http://www.taxlawyers.com.au. Both are associated with the same firm of lawyers who often mention updating trust deeds, splitting trusts etc. They may be able to work a way around the deed.
Maybe the trust could also borrow and lend you some money too?
Trusts work best when you can distribute income to family members on lower income first. Kids under 18 can earn approx $1300 pa without having to pay tax and adults about $11,000 now. So if you have any kids or non working relatives, then you could distribute to them first, and then your sister and then yourself. This should save the most amount of tax – but you also need to factor in your share vs her share etc.
You should probably only invest with the aim of making money, not claiming more tax. If you think it would be a good idea to buy property, then maybe gear up a bit more and this would probably offset the income from the trust for a few years.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
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Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au