Hi, curious to know how many investors here have more than 5 properties and have their investments in trust structures rather than in own name and also do any have multiple prop investments in own name and see no problems with it?
Generally there would be little problems until you are sued. Then it is too late.
After w whle tax problems will build. Rents increase over time and an individual will ended up paying a lot more tax – which is good as it means you will be makin more money, but there is little flexibility to reduce or mnimise this. This is why some people describe buying in your own name as a tax time bomb.
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 Terry, this is the reason im considering trusts now as we look to purchase our 5th ppty however my husband is a high income earner and we prefer to keep negative gearing benefits, how do we get the best of both? Ive heard that Hybrid trust may provide this although the tax office is not keen on these and banks aren't either?? With credit tight as it is i dont want to hinder borrowing prospects to grow portfolio.
Sure you can still just about borrow using a Hybrid Trust (from memory there are 3/4 lenders with vary rates and terms) but in saying that whether that will be the case when you come back for a top up in 12 months is a different kettle of fish.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
I don't like hybrid trusts because of the double CGT when you sell a property, lack of tax flexibility and lack of asset protection. Also financing is a problem.
If your husband is on a high income what about, assumng you have paid off your home, using a discretionary trust and him gifting income into it. It won't save him tax from his work, but will get the money into the trust for long term asset protection and tax savings. If you haven't paid the home off first, that should be a priority, generally.
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 Richard, Terry.
Double CGT? do you mean you dont get 50% discount when in trust? (sorry my lack of research is showing here) Also lack of income protection? I thought that was the reason for buying ppty in a trust in the first place…
With a hybrid trust people own the units of the trust. If you borrow to purchase income producing units then the interest would usually be deductible. This allows negative gearing in the trust.
But because you own the units when you sell the property they trustee must by the units back. The units would need to be bought back at market value which would be the value of the property in the trust. Thus the individual would pay CGT on the sale of the units to the trustee. The trustee would then sell the property and pay CGT as well. This is supposed to be a workaround so that 1 CGT is payable. But there are questions about this.
Because you own units in the trust you are exposed. Units are considered property under the bankruptcy act. So if a unit holder were to go bankrupt they units could fall into the hands of creditors. This is not the case with discretionary trusts as there are no fixed interest. If you were to go bankrupt the bankruptcy trustee could step into your shoes and he would only have the same rights as you had – to be a considered a potential beneficiary of the trust. A trustee would be crazy to distribute him any money though and could use their discretion not to.
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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