DFT vs Individual…the same old dilemma

Hi everyone,

In the absence of an accountant who's gone on holidays for 2 weeks, I need some advice. We have had an offer on a second IP accepted so are needing to move forward.

From everything I've read on this and other forums, the decision of DFT vs Individual name is very personal to one's circumstances. I'm beginning to think for my circumstances, there's no one 'right' way to go.

After a conversation with our accountant, we were thinking 'yes' to a DFT structure, however now I'm starting to rethink.

Here's a run-down:

IP1 – Joint names, current value $370k (conservative) and debt of $253k. Eligible to be classed as PPOR under the 6-year rule. Neg geared but will not for too much longer.
IP2 – ??? Offer accepted on a unit in regional NSW for $145k. Allocating an additional $20k for renos. We believe will be neg geared for up to 5 years.

PROS for DFT (from what I can gather):
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• Asset protection – although creditors (banks) can still take property
• Income distributed to family members in low tax bracket – what is the threshold for minors before they are taxed?
  
• Flexibility – can distribute income to leverage the best tax outcome
• Still get the CGT discount of 50%
• Extra deductions that can be claimed as a trust

CONS for DFT:
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• Expensive to set up ($3,500) and run (approx $1,000/annum)
• Losses are carried forward and applied to income – what does this mean exactly? We don't have an income until losses are off-set against future income when it does become cf+? So there's no income to distriubute until losses have been off-set?
  
• Pay land tax!
• Set-up costs are not tax deductible – check
• Can’t negatively gear
• Company trusts are NOT eligible for CGT discount of 50% – is a co. trust the same as a DFT with a corporate trustee?

As you can see, I have a few questions about trusts.

I'm swaying towards NOT using a trust (rather joint names) for the following reasons:

• We would like to think we will purchase a number of neutral/cf+ properties in the future, however we need to sit down and map this out and we're lacking the time right now…we're also a family with young children so don't really have the resources to focus on building a portfolio in the immediate future. We still want to build a portfolio, just not in the short term. If we had this mapped out and we were actively working towards it, I would suck up the costs and go with a trust now with a view that it will pay off at some point.
• Why not use up the land tax threshold? Currently IP2 would only use up a relatively small amount of the $387k NSW threshold. In saying that, paying land tax on IP2 wouldn't be huge either.
• Our plans for IP2 are to spend $20k immediately on renos – wouldn't we be better utilising the deductions through negative gearing (in the initial years esp)? Husband in 38c tax bracket.
• The cost of setting up a trust has been quoted to us at $3,500 (corporate trustee), then I'm estimating $1k every year to maintain…seems a lot to me for something that will be neg geared for up to 5 years.
• Not being eligible for CGT discount (co. trust) – I may be misguided here.
• My husband is a Paramedic – I suppose open to being sued like anyone else in the med profession (obviously we have insurance for this) but still a possibility and may benefit from trust protection. But no businesses or anything that would lend itself to litigation against us.

I realise there's a lot of figures/forecasts we need to crunch to get a clearer picture, however without an accountant around, we're trying to make the most educated decision in a short time-frame.

I should add that I am not working and won't be for approx 5 years.

Maybe there's no 'right' answer, but I'd love for anyone with knowledge in this area to help me work through my questions and fill me in on anything I've missed.

Thanks,
Amy