Hi,
Sounds like Steve's book was a popular gift this year! After reading the book, I think a family trust is the way to go for us to start investing but would be keen to hear advice from others. We are husband and wife, 3 young children & own our home (value approx. 410k). In 3 months we are moving and will be renting for probably the next 5years at least (approx. $200/week) We will rent out our current home for approx. $300/week and maybe sell it in the next 5 years. We currently have $60k cash available to start purchasing more property. Is the family trust the best way foward?
Thanks for your thoughts.Do you expected to be negatively geared?
If you are, then I would lean toward purchasing in the name of the highest income earner to get the biggest tax benefit.
If you expect to be positively geared, then a family trust is the way to go. With a family trust you could (for the 2009 financial year) distribute $2,667 to each of your 3 kids without them paying any tax or even needing a TFN or to lodge a tax return. The amount is increasing for this (2010) financial year and future years (I believe to $3,000) – so this means you can have 3 x $3k = $12k of income that is distributed in a very tax effective way.
If the Mrs is at home or only working part time (I imagine 3 young kids is a full time job and a half) then a discretionary trust is definitely the way to go if you will be positively geared.
Hope this helps.
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Thanks evolve. We expect to be positive geared so will head off to the accountant with family trust set up as the plan. Thanks again.
Before you rush off to the Accountant remember that the $300 / week you receive from the rent from the family home will be treated as Taxable income split as per the ownership of the property (I imagine Joint Tenants) so you might want to think twice.
Also not sure why you would use your cash for a deposit on an IP even if you had no other use for it at the moment.
Why wouldnt you take out 2 separate investment loans (not cross collateralised) and then place the $60K in a 100% offset account so that the funds are available to you should you ever decide to buy a PPOR or have other non deductible expenses but in the meantime will reduce the net interest payable.
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Hi Richard,
Thanks for your help. I have another couple of questions so please excuse my nievity as I ask them!
Is there a better option re the rent/taxable income from the family home? And..
Why the 2 separate loans?
Having the 60k still available but being useful is a much smarter idea – thanks. This really is a whole new world from the one residentail PPOR loan!Thanks for your patience
hi
I would think a discretionary trust is worth investigating further.
What I would do it to set up a LOC, or maybe 2 on the existing house (I assume it is paid off??). Use one for onlending to the trustee of the new trust for the 20% plus costs of the new puchase. The remaining 80% can come from a new stand alone loan.
As for the existing house you will have a few deductions for expenses such as rates and insurances etc. Instead of paying this with your cash you can borrow from the 2nd LOC and let the interest capitalise. This will slowly build up a debt related to the investment and the interest will be deductible and save you tax – although it will only be small, it all helps.
From there you should set up a 100% offset account on the new trust loan (the 80% one) and place all rents in there. You may even be able to lend the $60k cash you have to the trust at nil interest and this will save the trust interest on its loan and therefore make a greater profit which you can then distribute tax effectively.
ie you will be deceasing your personal incomes and increasing the trusts which is more tax effecient.
Check this with your accountant.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Ahh.. now I understand the 2 loans. Thanks Terryw I will check this out with the accountant.
As always, the more I learn the more I realise how much there is to learn!
Thanks.Hi There,
This accounting stuff is really specialised. I found out the hard way through my old accountant but thankfully my new accountant fixed everything up and the savings gained are huge. I strongly recommend you seek a good accountant who knows what they are doing, but also makes the time to listen to you. An accountant I can recommend is
david brandi
brandi & Co
punt Rd Richmond (if your in Victoria)Hope this helps and good luck
Many people are being held back by their friendly accountants!
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
chinadoll80 wrote:Hi There,This accounting stuff is really specialised. I found out the hard way through my old accountant but thankfully my new accountant fixed everything up and the savings gained are huge. I strongly recommend you seek a good accountant who knows what they are doing, but also makes the time to listen to you. An accountant I can recommend is
david brandi
brandi & Co
punt Rd Richmond (if your in Victoria)Hope this helps and good luck
Consumer Warning – David Brandi
http://www.consumer-warning.com/david_brandi.htm
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