All Topics / Help Needed! / Property Trusts

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  • Profile photo of trustieonetrustieone
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    @trustieone
    Join Date: 2007
    Post Count: 47

    I would like some feedback re setting up a property trust first and then buying an IP or 2 and place the properties in the trust,my thinking is that i am better protected this way,i also understand it is better to do it early as it may be too costly later to transfer the IP properties to the trust .

    1 am i and my assets better protected
    2 is it costly to set up and maintain a trust
    3 who would set this up solicitor or accountant

    Any feedback appreciated
    Thanks

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    1. yes
    2. no – depends though on who you use
    3. accountant

    Other things to think about:
    a) trusts often have to pay much more land tax
    b) Losses cannot be offset against your personal income

    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 luke1982luke1982
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    @luke1982
    Join Date: 2008
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    If you already have a property in your own name it can be costly to change to a trust as you said, however you can do an equity transfer.  Basically as it pretty much says, you can protect your equity in your property that's in your name by giving your equity to your trust and that money can be used to buy more property through your trust.

    Profile photo of trustieonetrustieone
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    @trustieone
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    Post Count: 47
    Terryw wrote:
    1. yes
    2. no – depends though on who you use
    3. accountant

    Other things to think about:
    a) trusts often have to pay much more land tax
    b) Losses cannot be offset against your personal income

    Terry  Do you know how much more the land tax rate may be (percentage terms), i am interested in NSW only,
    Do i assume that the trusts accounts are audited annually by my tax accountant and the returns are sent to the tax office just like any other business/company.
    As well as this forum,  where can i find out more about property trusts prior to going to an accountant.
    Also would i be entitled to the FHOG if i bought my first property through a trust (I will live in it for the first 6 months) then move back home with my parents,(where i always have lived)

    Thanks Terry

    Profile photo of TerrywTerryw
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    @terryw
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    Hi

    In NSW Land Tax is 1.6% of the land value. Individuals get an exemption on the first $350,000 (approx) of land. But trusts don't get this exemption (except special trusts such as some unit trusts). So if you have a $350,000 property (land value) in a trust it will cost you $5,600 per year extra. That is a lot of money.

    Trusts need annual tax returns done. But if you think about it, there is not much extra work at all. If you purchased a property in your own name, the accountant would need to take this into account anyway. It is just a matter of them filling in the details on the trust tax return rather than your own. Not much work at all, but they will probably claim it is!

    If you purchase via a trust you cannot get the FHOG for this property, but may be able to get it in the future for one in your own name.

    To learn more about trusts search the web and read as much as possible. There is a good book called "Trust Magic" by Dale Gatherum Goss which is easy to understand and there are some good websites such as http://www.taxlawyers.com.au ; http://www.lawcentral.com.au etc

    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 trustieonetrustieone
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    @trustieone
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    Post Count: 47
    Terryw wrote:
    Hi

    In NSW Land Tax is 1.6% of the land value. Individuals get an exemption on the first $350,000 (approx) of land. But trusts don't get this exemption (except special trusts such as some unit trusts). So if you have a $350,000 property (land value) in a trust it will cost you $5,600 per year extra. That is a lot of money.

    Trusts need annual tax returns done. But if you think about it, there is not much extra work at all. If you purchased a property in your own name, the accountant would need to take this into account anyway. It is just a matter of them filling in the details on the trust tax return rather than your own. Not much work at all, but they will probably claim it is!

    If you purchase via a trust you cannot get the FHOG for this property, but may be able to get it in the future for one in your own name.

    To learn more about trusts search the web and read as much as possible. There is a good book called "Trust Magic" by Dale Gatherum Goss which is easy to understand and there are some good websites such as http://www.taxlawyers.com.au ; http://www.lawcentral.com.au etc

    $5600 extra is a lot of extra tax isnt it, after all i only want to protect my assets as they grow, maybe having a company structure will be ok.
    thanks Terry for the info, I will take your lead and investigate the websites you gave me.
    Sometimes it seems that governments,councils,authorities etc put so many things in place that always has a large cost to it .
    I feel like if you/me make any money they want it..

    Thanks Terry & Good luck.

    Profile photo of TerrywTerryw
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    @terryw
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    Company structures are not recommended for appreciating assets as they don't get the 50% CGT reduction for assets held more than 2 years – so that means you will be paying a flat rate of 30% tax for captial gains. Whereas with a trust you will be paying a maximum of 24.5% and probably a lot less.

    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 trustieonetrustieone
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    @trustieone
    Join Date: 2007
    Post Count: 47

    So is there a right or wrong way to hold several properties to maximise your returns and reduce your exposure to liability/ risk, or is it not clear cut because of so many variables.
    With so many people holding many properties in their portfolios i wonder how they /most would approach this situation.
    Thanks for your valuable imput Terry.

    Profile photo of god_of_moneygod_of_money
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    @god_of_money
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    Hi All,
    I have a similar situation as well. I spoke with my accountant and she basically said as what Terry stated. You can't negatively geared the IP against your income. You have to paid land tax, setup cost,  and losing money if negatively geared plus all the associated cost. I guess that buying the first IP or even two may not need trust account.
    Yes, it may cost a lot of money in 10 years time due to stamp duty, transfer cost, etc…
    However, I went to property expo in sydney, Chan and Taylor shared a different opinion and preferred setup trust at the beginning. What do you think terry?

    Profile photo of TerrywTerryw
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    @terryw
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    I think it also depends on where you are buying properties. Different states have different rules. It is very painful in NSW now to hold property in a trust. But land tax is deductible and there are many other benefits of a trust  and the other tax benefits may still mean you are paying less tax overall.

    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 trustieonetrustieone
    Member
    @trustieone
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    Post Count: 47

    Thanks d_angstestra for you imput too,did Chan & Taylor elaborate why a trust should be set up in the begginning?

    At the end of the day there must be a more "correct" way to begin this venture that will give asset protection and liability protection.
    obviously cost are a concern but protection to me is a bigger concern. (but not at any costs though)
    Is there anyone out there who has several investment properties and what path did you take ie, trusts,company structure,sole trader,other.
    Thanks again to all who contribute it is appreciated.

    Trustie

    Profile photo of god_of_moneygod_of_money
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    Which one has better protection… Discretionary vs. Unit trusts…?
    If both of them have similar protection ability….. Why bother with Discretionary trust?

    Profile photo of P_IP_I
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    @p_i
    Join Date: 2005
    Post Count: 6

    Terry

    Having properties both in trusts and out of trusts my answers would be…….

    1. depends you need good advice and use the right trust for your situation
    2. no – in perspective they are not expensive and as per many things in life you get what you pay for – work with a specialist in the area and not just any old accountant whose practice is not clearly focussed on this area.
    3. accountant who has constant interaction with a good lawyer specialising in the area

    Despite hundreds of messages on web sites like this one and advice of many accountants you DEFINITELY can negatively gear your property while using a trust and you can offset losses against your income – have been doing it for a few years.

    You need good informed advice by the RIGHT people, have the RIGHT trust and carefully arrange the finance meeting all the required conditions i.e. who the name of the loan is taken out in with a clear link to purpose – NOT in the name of the trust or trustee. Banks have officers who understand these arrangements and can take a mortgage over a security and lend the money to someone else fulfilling all the requirements of negative gearing.

    Terry – ask your accountant
         how many investment properties he or she personally owns
         what percentage of their clients are property investors 
         what is their recommended strategy for asset protection for the future and protection of lineage
         through which trust & loan structures will the tax department allow me to negatively gear my investments
     – if they mumble or fudge saying I'll get back to you, leave the room and find someone else.

    god-of-money mentioned Chan & Naylor – they are definitely one of the accounting firms who can help you set it up correctly and know what they are talking about.

    BTW if you own several properties in a single state, in some states, you have the potential to SAVE land tax by having the properties in seperate entities.

    Cheers

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    I have over 45 of my properties in a variety of Discretionary Trust structures.

    Unless you use a HDT or Unit Trust "you DEFINITELY CANNOT can negatively gear your property while using a trust"
     

    Richard Taylor | Australia's leading private lender

    Profile photo of god_of_moneygod_of_money
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    So…does HDT or Unit Trust provide the same asset protection ability vs. Discretionary trust?

    I heard that ATO is start to crack on HDT????

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    They are GOM hence for asset protection  you would always use a DFT. 

    Richard Taylor | Australia's leading private lender

    Profile photo of god_of_moneygod_of_money
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    Hi Richard,

    Thanks for your input…
    but DFT has lack of negative gearing and costing land tax (in NSW).
    I m not sure about QLD… do you have to pay land tax for DFT?

    Do you anything about tax ruling on HDT? Has anyone being audited by ATO yet?

    Cheers

    Profile photo of god_of_moneygod_of_money
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    @god_of_money
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    Any further comments…. anyone?

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Sorry GOM missed your last post.

    Yes a DFT incurs Land Tax in Qld also.

    The following link may assist you in understanding more about the ATO audit of HDT's

    http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20083/NAT/ATO/00001

    Richard Taylor | Australia's leading private lender

    Profile photo of Hot propertyHot property
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    @hot-property
    Join Date: 2004
    Post Count: 8
    Qlds007 wrote:
    Sorry GOM missed your last post.

    Yes a DFT incurs Land Tax in Qld also.

    The following link may assist you in understanding more about the ATO audit of HDT's

    http://law.ato.gov.au/atolaw/view.htm?DocID=TPA/TA20083/NAT/ATO/00001

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