Hi All, we are in melb. At the moment we are face with many new challenges and many tough decisions ahead. We prefer to do it right the first time.
1. Setting up the correct structure to build an investment portfolio and to start a franchise business. WE are exploring the idea of Family Trust with Corporate Trustee. Any idea of such set-up cost & running cost for the first year & going forward? Should the business structure be within the same Trust use for IP or a separate one? If we plan to purchase 2-3 IPs this years through Trust & then concentrate to establish the business for 1-2yrs then start buying IP again when we are in better position, how much would the running cost be like? Is it worth it thr Trust or just use our names?
2. If we have spare cash of 100k to use. Should we use it to buy the business & vehicle with CASH OR are we better to get an investment/business loan and vehicle loan from Big4 to take advantage of the tax deduction for interest use as investment purpose? At the end of day, didn’t we still need to pay back the full amt of loan?
3. If we keep the cash for deposit in IPs, is this wise or are there better options? In the mean time, we should get the pre-approval loan for investment then buy the IPs before quitting the job & then starting the business (in order to produce the pay slip require by bank.)
4. We are tempted to pay for a finance advisor to help us. Are they really helpful? Any of you experience a good one in Melb?
5. What does a good broker and accountant can do for you?
We have followed this forum quite awhile and are happy to hear from people on what they would do and why not.
Cheers
1. Def do not use the same structure for your business and other assets. Businesses are risky and get sued all the time. You don't want your assets exposed. Set up costs for a trust are from $200+ on the internet or around $1000 from an accountant with some advice thrown in. Company costs $400 to set up or maybe $1000 thru an accountant. Running costs depend on what assets your trusts have and how many – but it shouldn't be that much more than buying them in your own name.
2. You should consider lending the cash to your company to purchase the assets – whether house or business. But you should also consider that if you personally go down then this money loan is your asset and can be called back. So you would also need to consider gifting it to your trust and weigh up the 2.
Also consider that it is not easy to borrow for a business in this climate.
3. If a bank knows you are going to quit your job to start a business, then it will be unlikely for them to want to lend to you!
4. What is a finance advisor and how much do they charge
5. A good broker can make sure you set your trust up in a way to help you go forward and maximise borrowings – and this should be done in conjuntion with an accountant who can give you tax advice etc.
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 thks for your email. Pls pardon me for asking some silly questions as I just want to get the correct structure setup without regretting in near future.
- So you mean to set up 2trust – 1 for business & 1 for IPs. Can one Trust have 2 corporate trustees?
2. By lending to company, do we still need to pay interest to it. Is Gifting a better choice or same in term of tax implication?
- That’s very right! That’s why we have to get the pre-approval funding before quiting. A broker in Melb have offer a investment & vehicle loans from Big4 without requiring any business plan and a service charge of $1000 and approval within 2wks. Is this usual? I thot lender normally pay to brokers?
- Can’t seem to find a good investment accountant in Melb. Any clue?
Appreciate your advice. thanks
Hi Ice
1. I would recommend a different trust or company for your business and a separate company for your investments. The reason is, business is risky and you are very likely to run into trouble at some stage. If you have your assets in the same structure, then they are at risk.
You could use one trust, but risky. You could use 2 corporate trustees – but this will not help as it is the same trust owning the assets. Maybe you are confused with having one company which can act as trustee for 2 different trusts. That is possible, but it is best to have a separate trustee as it makes things easier and clearly separate.
2. If you lend to the company, then the company is borrowing from you and should probably pay you interest. Tax implications will depend on your personal income v the company's. Companies pay a flat 30% tax, individuals have to earn more than 70K to pay more than this.
If you lend to the company, then this money still belongs to you. So if you were to go bankrupt, the company could be forced to pay the money back and will fall into the hands of your creditors.
A gift is different. It can still be clawed back in some circumstances, but it is much harder generally.
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
thanks terry!
Yes I am beginning to understand it is better to have 2 separate Trusts – 1 for business & 1 for investment. It will be a lot easier to account for the expense/depreciation during tax return & ATO audition. My partner & I were still trying to get these rights.
By lending to company & in return receiving the interest will eventually increase my personal income & tax, right? Or can this interest be paid into the IPTrust a/c to be tax at 30%? Do I need an accountant to document this lending to company?
We have spoken to a broker who has experience in business loan and vehicle loan. He explained due to his network with bank, we’ll not need to produce any business cashflow forecast and it will be approved in 10dys. But he charge upfront of $600 upon approval.
Is this the norm? We thought lenders will be paying them not us?
Talking about our investment plan, currently we live in PPOR abt 1yr+, we plan to rent it out soon. Should we sell it to trust or remain under our names? By renting out, does it mean it no longer is PPOR and we can buy another PPOR with gov’t bonus? Currently is P+I with CBA, it cost us $300 if we convert it to IO; to exit will cost us $700. In current market, is there more advantage for us to refinance or stay with it?
Any thoughts or inputs will be appreciated. thanks
Hi Ice
You need two separate trusts for asset protection, not ease of accounting!
If you lend money and charge interest you will have to declare this in your tax return as it is income. If you gift to trust A and Trust A lends to Trust B, then trust A can claim it. But the person or trust borrowing the money can claim the interest they pay as a deduction too. So Who lends who what and at how much will depend on your situation. You will need proper written loan agreements and you may have to pay stamp duty on the loan so check with your accountant or solicitor.
Some brokers charge, especially for the vehicle loans or business loans, and especially if the loan is small. The lender may also pay them something as well.
If you sell your house to your trust then stamp duty will be payable. There are many things others to consider here too so do some research. You can rent it out and still claim it as your main residence for up to 6 years, but cannot claim the main residence if it is in a trust.
I don't know what bonus you are referring to. If you have owned a place before as your main residence, then you couldn't get the FHOG.
If you are going to be charged a fee to change to PI, then you might as well move as there are some good specials out there now.
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 & All IP Experts, I'm getting quite confuse now. So 2DT – 1 for running business & 1 for IP with 1 corporate trustee. Is 2DT a better structure as I can understand the asset protection part. But how about loss in IP Trust cannot be offset by the business income? Whats your opinion on this? The accountant insisted that corporate trustee under same DT cannot also be a beneficiary? Is this true? All my readings seems suggest otherwise. Would you confirm this? He did not ask about the names of the children too. Is this not necessary for the trust deed? Is it really a better option to take up a investment loan for buying business rather than to use own funding? Will anyone & Why? Will you? I 'm sorry to ask so many questions. Any kind advice is truly appreciated. Any other issues I need to be aware of in setting up the right structure? I am starting to feel very stress abt setting it wrong & costly to amend. MAny thanks.
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