Ben
I agree the establisment costs vary considerably but i do a fair amount with NAB and the they do this product through their Commecial lending dept hence the attractive rate.
Westpac & SGB are way over the top and you are right up in the high 9's which make it totally unattractive.
Richard Taylor | Australia's leading private lender
I'm confused…again!
Terry – You say we could reduced CGT on sale of IPs by having them in a trust. But couldn't the same be achieved by super?
ie: If I sell an IP that's held in my name just before I turn 60, and then put that money into my super fund (and pay 15% tax), can't I then withdraw it after turning 60 and pay 0% tax?
If that's not how it works, then how does it??
thanks,
CarlinHi Carlin
I don't know anything about super. I know there are concessions, but to sell the IP you would have to pay CGT (which I think can be offset by making a deductible contribution into super), but then you say you have to pay 15% tax when you put the money into super.
If you had a trust you could distribute to yourself and still do all the above. But if your situation was such that your brother had a capital loss for a business which he had been carrying forward for 10 years without any hope of using it, then you may be able to distribute all the CG to him and pay absolutely no CGT. Then you can decide if you want to put the money into super (where it will be locked away) or do something else.
Trusts give flexibility.
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
If the property is sold (whether it is owned personally or in Trust) and a contribution is made into Superanuation then the Contribution (Subject to not exceeding the maximum contributions per year) can be offset against any Capital Gain.
I.e You make a Capital Gain of $50K and $50K is Contributed into a SMSF that year.
The Contribution into your SMSF is Taxed at 15% on the amount contributed.
Only when you are in Pension phase and the funds are withdrawn by way of an Annuity is the cash out Tax free.
Any Capital Gain made with a SMSF is Taxed at 15% although the concessionary rate is only 10% (where the Asset has been held for more than 365 days) which makes it attractive.
Richard Taylor | Australia's leading private lender
Qlds007 wrote:If the property is sold (whether it is owned personally or in Trust) and a contribution is made into Superanuation then the Contribution (Subject to not exceeding the maximum contributions per year) can be offset against any Capital Gain.I.e You make a Capital Gain of $50K and $50K is Contributed into a SMSF that year.
The Contribution into your SMSF is Taxed at 15% on the amount contributed.
Only when you are in Pension phase and the funds are withdrawn by way of an Annuity is the cash out Tax free.
Any Capital Gain made with a SMSF is Taxed at 15% although the concessionary rate is only 10% (where the Asset has been held for more than 365 days) which makes it attractive.
Also remember that if the SMSF is in full pension phase, all earnings (i.e. interest, dividends, rent, capital gains) are tax free. This is yet another benefit of using a SMSF closer to one's "retirement"
Hi
Hope everyone has had a good break throughout the festive season.
Thought I give an update to this thread by informing that I am meeting up with 2 accountants this week to discuss about a Family Trust.
On another note, I definitely have to look at SMSFs in the future.
Regards
Daniel LeeHi Daniel
Are the accountants charging you for all these meetings?
Be careful as I had a client go around for a few initial meetings and he ended up getting billed at a later date.
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
The 2 accountants that I am meeting this week are not charging me. The accountant I am meeting today said a free half-hour initial meeting to see if he can help, and the second accountant that I am meeting on Friday said a free first hour meeting.
To speed things through, I type out a summary of my investing strategy, and how I intend to use the Family Trust and Corporate Trustee.
I realised that I have to provide the right input to get the right output from any accountant. The very first accountant I met before X'mas did not give me much insight into things, as we did not really ask the right questions to begin with.
Regards
DanielWell… had my meeting with the accountant. Was not really impressed, and felt that at times, I knew more than him when it came to property investing. To put it simply, he advised against a DT and said to just go with buying in our own names. This is what he said…
1 – Asset protection: Who is going to sue you? What are the chances of that?
2 – Land tax: Higher tax rates with a trust. Why incur that cost?
3 – Passing on assets to future generation: You can do that with a will.
4 – CGT discount: Yes. available with a DT, but so is investing in own names.5 – Small Business concession: Not sure, but unlikely for a company holding rental properties and earning rental income. So, we would only receive the CGT discount and nothing else.
6 – Income / CG distribution: I said to him that the flexibility of being able to distribute income / CG to minimise tax is one of the core advantages of a DT in the long run, and he responded by saying that if kids are below 18, they cannot really help you much as their tax-free threshold is very low. Any future increases is more to keep in line with inflation. (Note: I had to tell him that the tax-free threshold for minors was going up to around $4.5K in 2011). Unless you intend to distribute any income to people outside your immediate family, you still end up pay taxes. I told him that distribution to anyone outside the immediate family group attracts the maximum tax rate. He said then there is even less benefit to use a DT.
7 – Money held in a DT with Corporate trustee: Not sure if we end up paying Corporate or Marginal tax rates. Better check with the ATO.
8 – Negative gearing & Depreciation: Why do you want to sarcifice that? You claim 100% of those cost to minimise any tax on a yearly basis to manage your cashflow.
He ended by saying that the personal tax rates have really come down in recent yrs, while Company rates have only come down a little, and that this pattern, in his view, was very likely to follow, that maybe 10 -20 yrs time, the personal tax rate will equal the Company rates. So, there would be no benefit to hold property in a DT.
Clearly, I did not get the answers that I was looking for, nor learnt much from this accountant. Will have to see what my meeting with the other accountant this Friday brings me.
Regards
DanielHi Daniel
Thanks for the update. It is good to see a variety of opinions. You will find that not many accountants have a good understanding of trusts and not many lawyers either. I was surprised to see my lawyer friend owning a number of properties in his own name with his wife not working. He ended up doing risky business ventures too. crazy
Anyway, here are my responses:
1) It is pretty remote in getting sued, but just look at the court lists. It happens to hundreds of people daily.
What if you take some bad advice and open up a business in partnership with your best friend. The business gets some debts, and your best friend disappears and you are left getting sued.What if you have an accident in your car and are not covered by insurance as you were not wearing your glasses etc
Many things can happen and these are not predictable.
2) Trusts don't get hit with a higher percentage, it is just that they do not receive a tax free threshold that individuals do – about $360,000 in NSW. This means you will pay a bit more land tax initially, but not after you hit the limit.
Other states are also different too. I think you may get the threshold in some.
Land tax laws are constantly changing too.
3) With a will you can pass on property – but what if you put your son down and while you are dying of cancer he goes bankrupt because he can't work while looking after you? Your property would go to his bankruptcy trustee who can then sell it and pay off his creditors.
Or what if your daughter got a messy divorce and her cheating husband go his hands on it? His new mistress could be living in it instead of your daughter.
etcTrust property does not pass through a will. It remains in the trust.
There may also be savings of CGT if property passed on is sold. (they may need some funds to pay for your funeral).
4. More flexibility in a DT
5. I am not sure you would get any concessions on residential, but you could on commercial property. Why not keep the option available
6. If each child is given $2666 pa (this fin year) that means you could be saving about $1300 in tax per child if you were on the top rate. A non working cousin could probably get about $14,000 pa and pay no tax (using the low income tax rebate). another $7k in potential savings.
Not sure what you mean about distributing outside the family. A trustee can distribute to anyone named or included in the trust. This usually includes most people with even remote connection to you. eg. future step children yet to be born. If they are not included, then you cannot distribute to them directly. So there are no tax issues.
7. The trustee is irrelevant. Whether it is a person or a company or a combination doesn't matter. If you distribute to a company, then it is the company's money. if the company holds the money it may be taxed at 30%. But the company may pay out dividends too or have other expenses. It is probably not a good idea to distribute to a company if it is trustee as then it is starting to take on none trust roles and this may complicate things. best to set up a new one.
8. True, you may be sacrificing some deductions in the early years – but the other advantages hopefully will outweigh this.
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
Daniel – the advice you got is the same I got from two accountants a couple of years ago.
Terry – Why would you want to give money away to family members beyond your children, just to save tax? I certainly don't want to be supporting "non-working cousins". Can't see how that's using property investing as a means to the good life (holidays et al). Or is the idea that you give them the money just to bypass tax, and then they give it back to you? Tricky arrangement, if that's the case.
Hi Carlin
I wouldn't want to support them either. Maybe if you buy then a carton of beer they will give you the money back as a gift? ie just a paper entry. But you do have to be careful as many potential problems. I personally don't do it, but it is always good to have the option there.
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
daniellee wrote:Well… had my meeting with the accountant. Was not really impressed, and felt that at times, I knew more than him when it came to property investing. To put it simply, he advised against a DT and said to just go with buying in our own names…
…Clearly, I did not get the answers that I was looking for, nor learnt much from this accountant. Will have to see what my meeting with the other accountant this Friday brings me.Regards
DanielHi Daniel,
Sorry if I'm out of line here. But don't you think getting free accounting advice is the reason why you're getting mediocre help on discretionary trusts in the first place? You should be asking your next potential accountant if they specialise in trusts before you even consider having a meeting with them.
You get what you pay for in other words.
Kind regards,
freelance2020
Hi, Terry
Yes. I am beginning to see the different styles and degree of understand of some accountants. Was thinking to myself that I really feel sorry for the investors who use the accountant that I met with yesterday. Was telling the wife last night that we really need a clued-up accountant, because we take our investing very seriously and intend for it to be the main driver of our wealth creation.
I did learn some things from my dealings with the accountant, and have revamped my approach for the next accountant. Instead of going in to get feedback on whether using a DT is the right path, I will simply insist that I want to use a DT with my selected strategy, and how the accountant can make it work for me.
Still, yesterday's meeting prompted me to print out pages after pages of material from the ATO website, to prove that the strategy that I want to use works.
Carlin: Regarding family members, I had this impression that I could only include the immediate family as beneficiaries, but later found out that I could effective appoint anyone as a beneficiary as well under a DT. So I can think of my mum and aunt, and that can help with tax.
Freelance: True. You pay peanuts and you get monkeys. You deal with babies and end up changing diapers. I paid for my first meeting with an accountant before X'mas, but did not get much out of it because I was not fully prepared with our investment strategy, and the proper documentation. So, wasted about $180.
With yesterday's accountant (free consultation), I was more prepared, did up a document detailing our investment strategy. Being a slow learner, I finally understood that most accountants are not going to be looking out for your best interest, they simply want to get the job done as quickly as possible. I got the impression that the accountant recommended investing in my own name, because that was what he knew, and that it was the simpliest way to go about it.
Also, I learnt that unless you give the right input and ask the right questions, the accountant is only going to output what you ask. If I do not know what I truly want, then no body can really help me.
I am sure with my next upcoming meeting with another accountant this Friday, I will hopefully finally get the answers that I have been seeking.
Regards
Daniel
Daniel
The accountant you spoked to doesn't have a clue! – I can say this because I have been an accountant for 11 years. A DT is the way to go.
From reading the comments above, it would seem the concept of a Family Trust was discussed. Put simply, if there are losses from prior years to carry forward you need to lodge a Family Trust Election which reduces who you can distribute to (basically close family) – irrespective of what the Trust Deed says. The alternative is athat series of "tests" must be passed by the DT.great discussion guys, keep it up. hope to learn from everyone here.
Hi, Ben
I posted this question on the thread below, but thought I do the same here to see if I get a different opinion. Maybe you can help me with this.
https://www.propertyinvesting.com/forums/getting-technical/finance/4323242
In your experience, is having a Family Trust with my partner and I as the trustees sufficient for the purposes in which the Trust is used (asset protection and income / capital gains distribution)? Should we go further by having a Company as a Trustee and us as the directors in the company? Is a Corporate Trustee an overkill?
We intend to keep any excess income / capital gains in the company to be taxed at corporate rates instead of our marginal tax rates, although any income or capital gains is unlikely to materialise for the next few yrs at least.
On reading the other thread, I am concerned with our borrowing ability, as part of our strategy requires us to borrow up to 90% LVR, and read that many Lenders get anxious with Family Trusts where they are not lending directly to people.
Opinions?
Regards
DanielHi,
might I also add that I am also looking at a DT with Corporate Trustee to possibly utilise the 'Capital gains tax concession for small businesses – 50% active asset reduction' in an event of any sale of an IP and having to deal with capital gains.
Cheers
DanielHi Dan
My take on using a company as trustee is that there are 2 advantages:
1) If the trust is sued.
If the trust is sued it is actually the trustee that is sued as they are the legal owner of the assets. Most deeds have clauses saying the trustee is indemnified out of the trust assets. But in some cases the trust assets may not be enough to satisfy the debts owed and in that case the trustee's personal assets may be at risk.There is a remote possibility of the trust being sued, but it can happen. I think i recall hearing about a kid that died in a house where an illegally constructed brick wall collapsed on top of the child. So it can happen.
2) Flexibility
This can work for loans and control of the trust and works because it is the trustee's name that is on legal documents.eg. You have a trust with yourself as trustee. You then have problems and end up wih a big default on your credit file. No one will lend to you because you are deemed a risk. You have all that equity but are stuck. you could change trustees to your wife, but this would entail changing the title deeds to your wife. This can be a real hassle, but shouldn't result in stamp duty as the real ownership is the same.
But if you had a company as trustee, all you would need to do is change directorships. No change in title is needed.eg. 2. Say you want to give control of the trust to your children when they are 18. You can just change directors in the company. easier than changing title deeds.
A disadvantage of a company as trustee is that some lenders don't like lending for trusts especially low docs (eg. St George, ANZ). If you had personal trustees they wouldn't know there was a trust involved.
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
So what happens if you want to purchase a new PPOR and put the old one into a Trust so you can borrow all the available equity for a deposit on the new PPOR. And what happens if you are not +geared on the old PPOR (Now IP). What trust would you use if you wanted negative gearing benefits etc a DT or HDT?
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