Hi.
Not quite sure if the timing is correct. But, I'd like to looking for my 1st IP now.
I initially want to set up a family trust and buy 1st IP under the trust.
However, I just got an advice from a financial broker. He said the 1st IP could also be purchased under my own name. cause, a trust will be a costy structure. if I just gonna buy 2 or 3 investment, it is not nessary to set up a trust.
I actually want to buy more if the 1st is going well. Also, I heard a trust (set up another company as trustee) was a good protection of your assets. Is it right? Should i set up a trust at the very begining or just wait for more investments?
If I go ahead with the trust, how much could roughly cost me to set up structure? I have a company. Can I use this company as trustee of the trust?
Also, is there any one knows the good accountant in Perth who are specialist in property investment and structure set up?
Thank you guys in advance for your help!!
Cheers,
MichaelGGHi Michael,
I'm new to the game too, but from the things I have read, NEVER use your own name for anything. If I'm renting your IP from you and have an accident on the back steps, YOU are responsible for my claim when I sue you, & if your insurance doesn't extend far enough, I can potentially take both your IP AND your Family home.
Don't really know anything about the Trusts, But why not just put the Properties in you Company name? Unless you're concerned your Company may get sued (Not Implying Shoddy workmanship, just the nature of people to Sue for the hell of it)? Or do you want them kept seperately for other reasons?
Will be interesting to see what experienced people will say
BoogzBoogz wrote:& if your insurance doesn't extend far enough, I can potentially take both your IP AND your Family home.Most insurance policies provide more than adequate cover for these types of accidents.
cheers
PaulBoogz & Paul,
Thanks for your reply.
Boogz,
I was thinking to use my company. But, I just found out it was not a good way to protect yourself. $1 company should be set up as the trustee. Cause it will control property but not own it. Correct me if I’m wrong.
Paul,
Would you mind to share more info to this kind of insurance (insurance company, cover, price etc.)?
Thanks,
MichaelGGMichaelGG wrote:Boogz & Paul, Thanks for your reply. Boogz, I was thinking to use my company. But, I just found out it was not a good way to protect yourself. $1 company should be set up as the trustee. Cause it will control property but not own it. Correct me if I'm wrong. Paul, Would you mind to share more info to this kind of insurance (insurance company, cover, price etc.)? Thanks, MichaelGGThe trustee company should be a new, separate company from any others you control. What is the current company doing? If it's doing nothing, then it can be used, but if you are opertaing a business or some other type of investments, then you shouldn't use it to hold new assets.
The company WILL BE the legal owner of the property, as the trust is not a separate legal entity. The trustee is the legal entity, which in this case is the company.
You wouldn't hold the property in a company, as opposed to company as trustee, because a company does not receive the 50% capital gains tax discount.
Set up costs – For a company / trust structure, probably about $1000, give or take. You can do it yourself for less, but I wouldn't recommend this for your first one.
Ongoing costs – the company pays a $212 fee to ASIC every year, and your accounting costs will be slightly higher, as you need to have trust financials and a tax return prepared every year.
Also, if the trust is a discretionary (family) trust, you can not access negative gearing. The losses sit in the trust to be offset against future income. In your own name, the rental loss offsets your salary income.
PaulTextor wrote:Most insurance policies provide more than adequate cover for these types of accidents.
Most insurance companies will use any loophole they can not to pay & most people will under insure to save a buck
"It'll never happen to me…"Hi Dan,
Thanks for sharing.
By using trust and company, there is the higher maintenance costs. Plus, no 50% capital gain discount entitled. No access to loss.
Therefore, the reason that people using this structure is mainly to avoid risk?
High income earner should buy couple negative gear investment under their name. And, they should buy positive gear property under trust to distribute revenue to other family member who has/have lower income.
MichaelGG wrote:Hi Dan, Thanks for sharing. By using trust and company, there is the higher maintenance costs. Plus, no 50% capital gain discount entitled. No access to loss. Therefore, the reason that people using this structure is mainly to avoid risk? High income earner should buy couple negative gear investment under their name. And, they should buy positive gear property under trust to distribute revenue to other family member who has/have lower income.Just to clarify, if the company holds the property, and is taxed on the property, there is no 50% CGT discount.
But of the company holds the trust as trustee, the taxable entity is the trust, and the trust is eligible for the 50% discount, provided it distributes the capital gains to individuals.
Risk is a key issue, as well as the flexibility to distribute the profits to low earning individuals. If you have kids, or a partner who earns less, you can distribute the income in a way that lowers the total tax payable.
I WOULD NEVER BUY A PROPERTY IN MY OWN NAME. Not even when you are starting out.
A trust effectively costs around $300 to set up with Cleardocs. If you use an accountant to set up your company and your trust for you it will likely cost ONLY $1,300-$1,500. A tiny amount considering the asset protection you get. On going costs are around $250/year for the company and $0 for the trust.
You need to set up a NEW NON TRADING company to act as the trustee. The directors of a company are liable for that companies actions if the company is trading insolvently. If you use a NON TRADING company it is impossible for it to trade insolvently and thus you as a director are completely protected.
Basically with a trust structure you are protecting yourself against your own negligence. and with buying property there is almost ALWAYS going to be some negligence you will miss. Insurance doesn’t cover you if they deem you to be a negligent landlord.
Trusts can also be better for passing on ownership to children or spouses.
PS. It might not be wise to listen to your financial broker. They are brokers because generally they are broker than you. My accountants tried to talk me out of the company/trust structure because they didn’t understand my long term investment plans. I went ahead against their advice and never looked back.
Ryan McLean
http://CashFlowInvestor.com.au
Positive Cash Flow Properties Are Just a Click AwayRyan McLean | On Property
http://onproperty.com.au
Email MeRyan,
Is the director of the corporate trustee of the trust in question not liable for negligence? You may like to confirm this one, with written advice that can be substantiated? Particularly as most people state it as the main reason for establishing a trust.
Further, trusts cannot distribute losses.
I also like to think that I am not being negligent when leasing a property – but if the case arises I have my public liability when insuring the property. $10 million with NRMA for incidents that happen on or outside the site – that is one bad broken arm?
Dan,
Thanks a lot for clarifying your previous reply. I found it really helped me.
Ryan,
Love to read your posts. learnt many things from your other threads. Thanks
BTW, I think i will set up an appropriate structure before the 1st IP.Number 8,
I think the property investment trust (PIT) can distribute losses.I am still struggling to find a good accountant in Perth. Any suggestion?
Thanks,
MichaelGGHi Michael
How many lenders do you know of that are still lending to PIT's.
I can think of 3 and their lending policy is horrid.
Richard Taylor | Australia's leading private lender
This is great information. Thanks for the insight.
If a person sets up a company simply to lower their tax rate from highest marginal rate to company tax rate are they better off from a tax payment perspective?
I want to buy, reno and sell in 9 month time slots. Therefore I must pay capital gains tax as an individual or income tax as a company. Is the company structure a better deal?Thanks
MichaelGG wrote:Dan,Thanks a lot for clarifying your previous reply. I found it really helped me.
Ryan,
Love to read your posts. learnt many things from your other threads. Thanks
BTW, I think i will set up an appropriate structure before the 1st IP.Number 8,
I think the property investment trust (PIT) can distribute losses.I am still struggling to find a good accountant in Perth. Any suggestion?
Thanks,
MichaelGGLilian Fisher (Chan & naylor)
Qlds007 wrote:Hi MichaelHow many lenders do you know of that are still lending to PIT's.
I can think of 3 and their lending policy is horrid.
Hi Richard,
Is it possibale that I borrow money from bank and then buy units in trust?
Thanks,
MichaelGGAs i say i am only aware of 3 lenders who will consider this at the mo and their policy is extremely tough.
Richard Taylor | Australia's leading private lender
Thanks
MichaelGG wrote:Dan,I am still struggling to find a good accountant in Perth. Any suggestion?
DON'T USE H&R BLOCK! That's my claim! They screwed me seriously & didn't return my Docs.
If you do find a decent bloke, let me know too!
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