Is it legal to rent the property back (paying market rental value) that has been purchased under DFT?
Any legal implication from that as I am thinking about renting it back for short period of time
Any comments??? Accountant??
yes its legal.
Legal implications would include to make sure the trustee is acting in the best interests of the trust. You could do this by making sure everything was done properly at commercial rates etc.
Tax implciations would include taking into account any losses would be trapped in the trust. If there are losses then you may need to consider a family trust election. Loss of CGT exemption and payment of land tax.
Also consider the trust supplying furniture etc. ie rent if furnished.
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
Thanks for input..
I do have a PPOR and currently rented (and still under 6 year rule for CGT)I do understand that losses will be trapped in the trust and I will pay market rates for residental (as per valuer rental valuation).
The land tax and CGT will not be relevant as I have a PPOR.My concern is:
1. Can I use the rental income/deprecitation to reduce my bank interest? (NOT the personal tax)
2. If the DFT earns positive income (i.e. rental income >> bank interest) .. can I still distribute the money to the lowest income bracket?Thanks
Hi GOM
1. Depreciation and other costs come off the income of the trust. So it won't actually reduce the interest, but reduce the profit.
2. yes, if there is a profit this will be distributed in accordance with the deed. Usually there are a wide class of beneficiaries and the distribution can be made at the trustee's discretion.
There are also some private rulings regarding renting from you own trust. WIll dig them up and post links soon.,
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
In regards to point 1… I mean the rental income/depreciation can be used to offset the loan interest. How it will reduce the profit?
I tried to search it on ATO website… can't find the ruling..thanks for posting it
Keeping in mind PBRs are only binding on the person who lodges the request look at this one. Look at the ATOs reasoning and you will get a good idea how it works:
PBR 83291
http://www.ato.gov.au/rba/content.asp?doc=/RBA/Content/83291.htmTerryw | 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
re 1
Say the rent was $20,000 pa. Expenses were $10,000 and depreciation $5,000
Profit = income – expenses
= $20,000 – ($10,000 + 5,000)
= $5,000This would be the taxable income of the trust which could then be distributed.
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 for the input Terry. As long as I pay the market rental rates, it should not have any problem.
Do I need to apply for private rulings?I am not sure, that is something that you should discuss with your accountant. There is a chance the ATO could look at it as some sort of scheme, so it may be wise.
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
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