hi all..
looking for advice on a structure.
my brother and I jointly own 2 apartments (personal residences – mortgaged) and one investment property (positively geared).
We have placed a deposit on an investment apartment. Our intention is to purchase more as time goes on.
What is the most effective structure considering NSW land tax, income and CGT rules?
My accountant doesn't seem very competent and basically said to own them personally unless the properties are positively geared.
My idea is as follows:
My brother and I obtain loans to purchase shares in an investment company (myself and him being the directors).
The investment company sets up a trust to purchase property and is the beneficiary.
The trust earns rental income and fully distributes to the company (beneficiary).The beneficiary pays appropriate taxes then distributed a fully franked dividend to it's shareholders (my brother and I).
This dividend income is offset with interest expense on the loan to produce a net tax loss.Are there any issues with this setup?
Urgent comments would be appreciated.
Your idea sounds good, but sorry I do not really know. I was hoping you might be able to help me with my question since you sound quite clever in regards to trusts. I am in Vic. Anout to buy a farm, in a familt trust, with compnay as trustee. How do i fill out the title transfer. I beleive i have to use the trusts trustees name which is the company. But then how do you prove it belongs to the trust!!. If people do a titel search they will see the compnay name.
Hi DIY
You do use the trustee company name on the title, as the company is trustee for the trust the two are entertwined. You can purchase in the name of the trustee co as ATF the trust, but a lot of places pefer just the trustee company.
As for the investment company/trust set up query – your thoughts are generally what a hybrid trust does. You set up a trust with a trustee company and then trust issues units to the individuals and these units enable the unit holders to claim the negative gearing and the interest is claimed in their personal names. Any income for this property (per the units) if the trust makes a profit is distributed to the unit holders also. Other income not per the units is treated as discretionery and distribued in the most advantageous way.
If you were purchasing the property with someone other than a partner a unit trust would be the way to go but where a hybrid trust has the unit advantage with discretionery powers the plain unit trust does not, if the properties became positively gearing the income would still have to be distributed per the units whereas with a hybrid trust if the property became positively geared once the units are redeemed the trust kind of reverts to a discretionery trust and the income distributed in the most advantageous way.
Hope this jargon makes some sense to you!
Alysha
There are many things to consider
– such as why have 2 directors = twice the risk and inflexible with borrowing.
– In NSW there is no land tax free threshold for trusts, so you will be paying more with a trust.
– Trusts cannot distribute losses.I still think that discretionary trusts are worthwhile, but they can be painful in the early years, especially if you have no other income in the trust to offset the loss. But if you think of the potential tax savings in the future, as well as the asset protection issues, then I think they are worth it.
Beware of Hybrid trusts, most existing ones will fail ATO scrutiny, and the ones that do pass will be not much better that buying in your own names. They can allow negative gearing, but the deed has to be worded in such a way as to make all of the income and capital gain go to the unit holder. This is not ideal when the asset is sold or the income is more than expenses as the unit holder will be stuck with the income and more tax.
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
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