I'd appreciate some guidance here please!
Currently own PPOR in Sydney (Portfolio line of credit) + IP in Brisbane (discounted variable IO) in my own name.
Looking to purchase house on the Gold Coast with a view to moving in in the near future.I am self-employed, business structure is Corporate Trustee/Discretionary Trust.
I've been told that in order to finance Gold Coast house, I will probably have to go for Low-Doc IP interest only.
If I do have to go for an investment loan and I decide to move into the house, am I able to charge rent to my company for the room I use as the office? I know this will impose CGT liability on the house, but if its purchased as an investment property CGT will apply anyway. I don't plan to sell my current PPOR in Sydney and want to make the most of the 6 year rule when I move to the Gold Coast.
Are there any benefits for my trust to purchase the house? My business produces the sole income for my trust – does negative gearing apply to an IP owned by a trust? Or would finance be more difficult or more expensive for a trust than a natural person?
Would appreciate some expert advice – thank you!
Trusts can negative gear – losses from an investment property can be offset by other trust income, but you cannot offset personal income. This shouldn't be a problem with being self employed.
I would urge you not to buy in the same entity as your business. If you do, then you will be exposing the house to creditors if your business fails. Set up a new trust – there is no stamp duty on trusts in QLD so it will be pretty cheap. Your business can then distribute income to the new trust to offset any losses.
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
Terryw wrote:Trusts can negative gear – losses from an investment property can be offset by other trust income, but you cannot offset personal income. This shouldn't be a problem with being self employed.I would urge you not to buy in the same entity as your business. If you do, then you will be exposing the house to creditors if your business fails. Set up a new trust – there is no stamp duty on trusts in QLD so it will be pretty cheap. Your business can then distribute income to the new trust to offset any losses.
Thank you Terry – I think I need a really savvy property accountant – mine has the smarts but she's not a property specialist. I need to get as much leverage out of my situation as possible – can you recommend anybody please? I'm in negotiations on the house at the moment so time is of the essence!
Hi Robyna
As you are buying up on the Gold Coast I can certainly recommend and excellent property Accountant.
Try Steve Hodgkinson who is a partner at the Gold Business Group in Southport.
Steve has been my Accountant for the past 12 years or so and is an expert on Trusts and Structures.
He can be contacted on 07 5532 2855.Tell him i sent you as most good property accountants are not taking on new clients.
Lodoc for a Pty Ltd Company ATF Trust is still readily available so shouldn't have much problem in financing it once you have the structure set up.
Richard Taylor | Australia's leading private lender
Terryw wrote:Trusts can negative gear – losses from an investment property can be offset by other trust income, but you cannot offset personal income. This shouldn't be a problem with being self employed.I would urge you not to buy in the same entity as your business. If you do, then you will be exposing the house to creditors if your business fails. Set up a new trust – there is no stamp duty on trusts in QLD so it will be pretty cheap. Your business can then distribute income to the new trust to offset any losses.
I agree with Terry. I certainly would try not to put the property into your existing trading trust (subject to what I'm going to say further below), ie, I would set up a new trust to own the property. Given the non-arm's length relationship of the trusts, however, you will need to ensure that the lease must be at market value rent (ie, yes, the trading trust can lease the property off the new trust). Otherwise, the tax man wouldn't be very happy. If there is still a net loss in the new trust, you will need to see if you could put income into the trust to soak up the negative gearing loss.
This might sound contradictory but if the business in your existing trust is very low risk and the trust carries on a "personal services income business" or a non-personal service business, it might be more beneficial to buy the property in the existing trust. That way, the negative gearing loss will directly reduce your business profit in the trading trust. Your accountant should be able to give you more guidance on this.
The finance side shouldn't be too different or difficult. The only thing the bank is interested in is security and your ability to make repayments. Using the trust could possibly include your personal guarantee but that's essentially the same position as owning the property in your own name. There will be one more piece of paper to sign but not too much more expensive (if at all).
Let me know if you need an accountant specialised in property in Brisbane.
Eddie
[email protected]eddiec wrote:Terryw wrote:Trusts can negative gear – losses from an investment property can be offset by other trust income, but you cannot offset personal income. This shouldn't be a problem with being self employed.I would urge you not to buy in the same entity as your business. If you do, then you will be exposing the house to creditors if your business fails. Set up a new trust – there is no stamp duty on trusts in QLD so it will be pretty cheap. Your business can then distribute income to the new trust to offset any losses.
I agree with Terry. I certainly would try not to put the property into your existing trading trust (subject to what I'm going to say further below), ie, I would set up a new trust to own the property. Given the non-arm's length relationship of the trusts, however, you will need to ensure that the lease must be at market value rent (ie, yes, the trading trust can lease the property off the new trust). Otherwise, the tax man wouldn't be very happy. If there is still a net loss in the new trust, you will need to see if you could put income into the trust to soak up the negative gearing loss.
This might sound contradictory but if the business in your existing trust is very low risk and the trust carries on a "personal services income business" or a non-personal service business, it might be more beneficial to buy the property in the existing trust. That way, the negative gearing loss will directly reduce your business profit in the trading trust. Your accountant should be able to give you more guidance on this.
The finance side shouldn't be too different or difficult. The only thing the bank is interested in is security and your ability to make repayments. Using the trust could possibly include your personal guarantee but that's essentially the same position as owning the property in your own name. There will be one more piece of paper to sign but not too much more expensive (if at all).
Let me know if you need an accountant specialised in property in Brisbane.
Eddie
[email protected]Thank you for both your advice and your time in responding Eddie. Any referals would be welcome – just need to put the next foot forward in the right place!
Thank you
Robyn
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