Hi everyone,
I’ve come to a point where I’ve written off all my income tax through a few properties.
I want to continue buying but no too sure which way to go. My accountant recommends to keep buying in my name but I’m not comfortable with that as I’m offered no asset protection. I set up a hybrid/discrestinary trust which I still haven’t used. My next purchase will be a strata deal on a block of units.
Any advice would be helpful!
One of the major disadvantages of a trust is that any losses cannot be used to offset your personal income. If you don't have any personal taxable income then this isn't going to be a problem for you. Another disadvantage is loss of land tax free threshold in trusts (in NSW and a few states). But you have probably used up the tax free threshold anyway and so this may also not be a problem.
Just be careful about using HDTs – many were set up incorrectly and the tax aspects may not work. They may also offer little or no asset protection as the units are considered property and maybe available to creditors.
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
does that apply for all trusts?
Does what apply?
In NSW fixed trusts may be treated differently to discretionary for land tax purposes. No trusts can offset losses, but there is a way around if it borrowing to buy units – but careful drafting is needed and flexibility will largely be lost.
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 would look at your longer term goals and what you want to achieve.
Once most people have two, three or four IP's in their own name and if they are typical median priced negative geared IP's, they may have used their income tax benefits like you have.Some of the issues with owning IP's in your own name include:
- land tax (if all in same state)
- eventual change to positive gearing and additional income tax payable
- capital gains tax
One way to overcome this is using a different legal entity. Most use a discretionary trust as opposed to a unit or hybrid. A large part of the choice is that lenders are comfortable with the discretionary but many lenders will not lend to the other two. If you have already used your tax benefits, then I would consider purchasing in a DT, they tend to be cheaper to set up and administer and you still have a full choice of lenders. The fact that you can't pass the tax losses down to beneficiaries and need to keep them in the DT to match against future profits assists you further down the track.
Asset protection is an added benefit if you are a PAYG employee or a critical protection mechanism if you are a business owner or in a profession where there may be a risk of being personally sued.
Good luck
Greg
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