- My husband and I are in our early 30s. We currently own our ppor worth approx $600k with about $300k mortgage. the ppor is in my name only. We also bought a medical practice last year which we now own with no debt. Our accountant recommended us to set up a discretionary trust with a corporate trustee when we bought the practice. It is a solo practice. My hubby works as a solo GP while I work part time as a dispensary technician at our local pharmacy
Being a solo practice, according to our accountant, the income from the trust cannot be distributed at our discretion. our trust can pay me an income for admin work but the bulk of income will have to distributed to my husband.
We are now looking into buying our first investment property. We asked the accountant whose name we should put our ip in – either in the trust, my husband's name or my name.
We were given the following scenarios.
if in the trust, the negative gearing can be offset by the income generated by the practice, but we were told the trust will have to pay higher land tax and if my hubby gets sued, the ip in the trust will be at risk.
if in my hubby's name, same problem, if he gets sued, the ip will also be at risk although he will benefit more from negative gearing as he will receive most of the income distribution from the trust.
if in my name, i suspect bcos i am on a lower income, the bank will lend us limited funds for the purchase of ip.Our accountant does not seem to be able to come up with a good answer. He thinks it's best to put the ip in my name for asset protection purposes.
Is anybody out there in a similar situation?? Please give us some advice.
thank youHi Kacha,
In regards to the income distribution of the trust, your accountant is correct. The majority of the income should be distributed to your hubby as he is the sole income earner of the trust. These rules are the Personal Servises Income rules, and look to limit the profit splitting from trusts.
It looks like what your accountant has done is outline a number of scenarios for you, showing the positives and negatives of each situation, rather than make a recommendation for you.
I personally wouldn't put it in the same trust that operates the business, from an asset protection point of view.
On whether it should be in your name, hubby's name or both, I guess it comes down to whether you think the tax savings of having a negatively geared property in your husbands name outweigh the possibilities of your husband being sued. Is that a risk you are willing to take? Some people would, but some wouldn't.
Another option is to put the IP in a new trust, although this will not give you the tax benefits it would if it was in your own name/s.
It really depends on whether the more important thing to you and you hubby is asset protection or tax advantages.I hope this helps.
Hi Kacha, yes Dan is correct, your accountant has outlined options to you. I would go asset protection. You also need to consider the long term objective. Are you doing this for long term gain or short term tax benefits. Map out a plan for your longer term and see where that takes you. Your accountant has done the right thing in outlining options. I know we went this way: Trust and found that it did not do what negative gearing did for us but we are now happy that we went this way as we now see the benefits if the property grows in CG or in rental returns. Cheers
You should probably be able to over come the PSI rules to some extent. You should probably seek out another opinion from another few accountants as it could save you a fortune. Something simple could be to form another trust which could operate as a service trust supplying services such as secretary, equipment etc and leasing this to the other trust – at a profit of course. This way money is diverted to the 2nd trust. It has to be set up properly and commercially for it to work.
Another way may be to get another doctor in for 1 day per week as a contractor and your husband go and work at another practice on this day – maybe the husband could be hired out supplied by the 2nd trust. This may help overcome the PSI rules and broaden the client base.
You can then set up a 3rd trust and purchase the property in this one. Profit from the 2nd trust could be distributed to the third trust to offset any losses.
needs careful planning
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 to all replies.
Does anyone know of any property savvy accountants that i can contact?
thanksthanks to all replies.
Does anyone know of any property savvy accountants in Melbourne that i can contact
thanksYes, please try Mark Ault at CP Partners in Balwyn and Epping at Mark Ault
Executive – Business & Tax
C P PARTNERS
Accountants
Email: [email protected]
Website: www.cppartners.com.au
Phone: (03) 9408-6555
Fax: (03) 9408-6660
Tell him Christine referred you.thanks for the referral.
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