I have been reading about the drawbacks of negatively geared properties being held in a trust. The problem is the tax benefits of negative gearing are lost if the properties are held in a trust. Also there is CGT payable if you want to transfer/sell the properties to the trust down the track. Although this expense may be outweighed by the potential taxsavings on the properties once they become + cashflow and the income is distributed to the beneficiaries. Does anyone else have any experience/comments in this process?
Trusts are separate entities for tax purposes. They submit their own tax returns and are separate persons for tax. So any loss that a trust generates cannot be used by a third party.But trusts can negative gear property. Any loss can be used to offset other income of the trust, just not your personal income. This isn't much use for someone starting out or on PAYE tax. Buf if you are self employed it may be possible to divert income from one trust into the trust with the property making a loss. This has the net affect of reducing tax.Also consider buying property in a fixed unit trust. It is possible to borrow to buy units in the trust and the interest from the loans on the units can be used to offset personal income tax. Later the units can be redeemed by the trust and the trust can become a discretionary trust. It is possible to do this without stamp duty being payable in NSW or other states too. It may also be possible to transfer the units into a SMSF later.But, you may find it very hard to get finance for this sort of structure at the moment.
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
Basically buying negatively geared property in a trust is usually only going to be worthwile if the trust is already earning decent income on its own in order for you to offset property costs against and reduce the trusts tax liability. If your just starting out as a PAYE tax situation, its probably best if you buy properties in your own name and then transfer them to a trust at a later date.
(Assuming you have spouses as beneficaries to reduce tax income and that gain is worth the CGT or other transfer fees)I wouldn't say that.
It is a choice between getting more tax benefits now v getting them later. There are also the asset protection benefits and estate planning benefits of using a trust.
It is generally too expensive to transfer properties to a trust later because of the CGT and stamp duty, legal and loan costs.
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 i am very confused about this whole issue. I am married and have two kids and i am the only working individual in family my wife look after my business and i am in high risk profession. I currently have discretionary trust and Trustee Company of which my wife is director and i have my own personal company. I have my principal home on joint name and one property on trust name and i am looking for changing my personal home and shifting close by to my kids school.
My accountant advise me to buy new property on trust name which i am planning to stay for as long as my kids study in that school or may be keep it for my kids for future. My worry is CGT here over the period of time because i am investing a lot for this home.
second advice given to me is to go for property trust from one acc.
third advice is make family trust separate and practicing trust separate.
I have hell lot of loan but i am comfortably able to furnish that.
I don’t know what to do ,whom to listen. Please advise me and suggest me.
Hi Happy,
I am a bit confused by you first and second advices – how do they differ?
If you buy your PPOR in a trust there are a lot of things to consider.
– If in NSW then extra land tax may be payable.
– loss of CGT exemption
– ability to claim the interest as a tax deduction.You could possibly buy in your wife's name only. But this can still be risky if you contribute to the purchase or repayments as it may be considered half you house too.
Definitely, if you are using trust to trade or run a business then don't buy a property or any asset in this trust as if the business is attacked the trust assets will be at risk,
If you are going to keep the first home as a rental then you may be able to keep classing that as the main residence and keep it CGT exempt while renting out so CGT may be less of an issue.
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 all,
This is an interesting topic. My partner and I are going to buy our 1st IP this year, hopefully positive cash flow, so we were wondering if we should put it in a trust or in my name. We don’t own any property or business yet. Many things have been said about this topic, I’m still processing the information. I got some hints here. Thanks for that.
Cheers
Alex
Terryw wrote:Also consider buying property in a fixed unit trust. It is possible to borrow to buy units in the trust and the interest from the loans on the units can be used to offset personal income tax. Later the units can be redeemed by the trust and the trust can become a discretionary trust. It is possible to do this without stamp duty being payable in NSW or other states too. It may also be possible to transfer the units into a SMSF later.But, you may find it very hard to get finance for this sort of structure at the moment.
This is what is meant by a hybrid trust, isn't it? How does the tax office view this type of trust? I have been given a very negative impression of these by my accountant, but a very positive impression of them by some people who presented at a Michael Yardney conference I attended last year. Are they difficult to establish in an ATO-happy way?
Yes, hybrid trust.
ATO has no problem with them if they are set up correctly.
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
Make sure you get a good hybrid too one with a private ruling.
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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
