Hi folks,
In preparation for purchasing IP # 2 in the next 2 months, and hopefully purchasing #3, 4 and 5 within 12 months, I have been doing a lot of reading and researching about IP strategies, property research etc…
The next area I want to look into, is should I be buying these prpoerties in my own name (IP #1 solely in my name, was PPOR for 2 years, and has been IP for 2.5 years), OR should I be looking into setting up a Pty Ltd company or a family trust under which to purchase them.
My salary is currently modest, but should be rising over the next 2 years. For now the whole tax savings is not a big issue but I think it could be in the future.
Where do I start for educating myself on this area? How do I take into account my fiancee and future children too?
Do I speak to an accountant (need to find a new one), or my financial planner who is also the mrtgage broker?
Hoping someone will point me in the right direction…
Thanks!
EmmaThe most advantagious approach is usually to have the property in your own name. Trusts and companies are mostly useful for asset protection reasons. eg. If you were an accountant or lawyer who might be sued for your personal assets.
You are best off speaking to a good accountant and tell them as much about your circumstances as possible. The law is very complex and any small aspect of your situation may change the answer about which is the best strategy.
Hi Emma
Have to slightly disagree with Ajay in relation to his statement The most advantagious approach is usually to have the property in your own name. Trusts and companies are mostly useful for asset protection reasons.
There are many reasons why investors buy property in a variety of entities each depending on their own circumstances as well as the particular property.
Whilst buying in your name initially might suit the average investor when you starting increasing your asset base and your personal circumstances change i.e you get married, have children etc your requirements change with you.
Difficult to make a recommendation without a lot more information however even if you didnt want to go to the slightly extra expense of a Corporate Trustee nothing to stop you utilising a Discretionary Family Trust structure with a Individual Trustee.
This way you will have asset protection as well as flexibility when it comes to income distribution. Of course if you need to rely on negative gearing then this may not be the way to go.
As a Financial Planner we find many of our clients adopt such a structure and enables them to grow with their portfolio.
Of course like everything it is not for everyone.
Richard Taylor | Australia's leading private lender
Thanks to both of you for your comments…
Ajay I do indeed plan to speak to an accountant, but just want to already be armed with some knowledge before the meeting…
Richard, any suggestions on where I can start reading about discretionary family trusts?
At the end of the day, I will be relying on the accountant to advise me based on my situation But I want to fully understand my options and make an informed decision based on their professional advice.
Another consideration is of course financing the deal.
It is all well and good having an Accountant establish a wonderful structure for you but in this current climate many lenders do not offer the same interest rate or application fees discounts (or even do not accept applications full stop in certain cases) for certain structures.
A good read albeit slightly out of date would be Trust Magic. Shoot me an email if you want a PDF copy.
Richard Taylor | Australia's leading private lender
I would suggest you look at using a discretionary trust. I would personally only ever buy assets in a trust.
Companys offer little asset protection at all for property ownership – only if the shares are owned by a discretionary trust. Where companies do offer protection is if you are running a business and the business is sued = the company not you. They could help you if the tenant sues the owner of the property, but not if someone else were to sue you.
Also companies are not the best way to own an appreciating asset as they do not get the 50% CGT discount.
I suggest Trust Magic for an easy to read book about trusts and also to do some searches here and on the net in general.
Also be aware that trusts do have some draw backs such as more land tax and losses cannot be used to offset personal income.
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
I’m pretty much in the same boat Emma, except no PPOR due to being in my 1st year out of uni. I’m saving 4K p/m so like yourself I’m looking to buy as many IPs as I can.
After reading some Kiyosaki books I’ve been trying to get info on starting a corporation so that the +ve cashflow can be used to buy more IPs with pre-tax dollars. Judging by the responses here is that not possible/not as beneficial in Australia?
Asset protection aside, what would be the best structure tax-wise for someone on a high income? And sorry for being a noob but what are the benefits of a trust?
Richard could I grab a copy of Trust Magic off you? My email is [email protected] if that’s alright. Cheers mate.
Chris
american concepts don't always work in Australia.
You could buy using a company, but this would result in more tax being paid and offer little or no asset protection.
If you have no property now, i would suggest you look at buying one in your own name, live in it initially (maybe get the FHOG and stamp duty concessions) and then move out again. Using the tax laws to your advantage you could claim this house as your main residence and sell it CGT free for up to 6 years.
Discretionary trust offer very good asset protection and great tax flexibility. Each year you can distribute the tax to the lowest tax payers (amount your trusts beneficiaries) and save tax this way. eg. each child can earn $3,000 pa and pay no tax, each individual $15,000 and no 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
what is the difference between;
– Discretionary Trust
– Unit Trust
– Family Trustor are they all the same?
yep good idea Terry, I’ve just found out there’s no stamp duty in WA for FHB up to $500K so I think I’ll be doing that.
Sorry to get off topic, I’ve got a few questions but I’ll open a new thread. Here’s the link…..https://www.propertyinvesting.com/forums/property-investing/help-needed/4328898
Rudiga wrote:what is the difference between; – Discretionary Trust – Unit Trust – Family Trust or are they all the same?A discretionary trust is one where the trustee has discretion on how to distribute profits. usually the beneficiaries are very wide.
A unit trust is one where the beneficiaries are fixed. each as a unit or units so the profits must be distributed in accordance with the percentage of units owned. No flexibility. These are good for separate families or friends to do a joint business. Units could be held by each parties discretionary trust.
A family trust is actually a discretionary trust which just includes family members – but generally people use this term losely for a discretionary trust which may also include no family members.
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
terry – so to take this thread a little off topic, but what are the cost differences in the types of trusts you have mentioned above?
YI
YI
Hardly any difference in setting cost at all.
Adding a Corporate Trustee will add a little to the bill but not much.
Richard Taylor | Australia's leading private lender
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