Hi,
I am new to investing through a discretionary trust. I’m hoping to seek advice on the following situation.
I have topped up my loan from one of our IP (joint tenants) and will be lending it to the family trust (Corporate trustee) for a deposit to purchase a property.Do I need to transfer the deposit amount from the IP loan account to the family trust account for the corporate trustee to draw out a deposit cheque?
Or do I write the deposit cheque from my IP loan account?
(The cheque will be in our name.)
Also, will I need to record in the minutes that I have lent the money for the family trust to invest at commercial interest rates?
I appreciate for any given advice.HI,
If you are paying a deposit to purchase the property, and seeking finance then for the balance, you MUST pay the deposit via the trust or you will be in breach of SMSF legislation, which could have serious repercussions for you. You cannot 'reimburse' a third party from the SMSF for the deposit. Of course, you could make a gift/contribution to the fund for the deposit amount. Make sure you check this out in more detail before you do anything with a finance professional.All the best.
v8ghia wrote:HI,
If you are paying a deposit to purchase the property, and seeking finance then for the balance, you MUST pay the deposit via the trust or you will be in breach of SMSF legislation, which could have serious repercussions for you. You cannot 'reimburse' a third party from the SMSF for the deposit. Of course, you could make a gift/contribution to the fund for the deposit amount. Make sure you check this out in more detail before you do anything with a finance professional.All the best.
Thanks v8ghia for the advice,
Does that mean I have to transfer the deposit amount over to the trust account? From there I write the cheque?
Let’s say for example…
I borrowed 100k from the IP loan interest at 7% .
Then lent it to the trust to invest; charging the trust interest on what the bank is.
Wouldn’t the end result cancel each other out?Hmmmm….Looks like I have to go and see an accountant before I do anything.
Trusts don't come under the SIS Act or any SMSF laws – unless they are SMSFs.
If your trust wants to borrow money you can lend it to the trust by entering into a loan conctract with it. This is best to be a written agreement.
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,
Thank you, for making it clearer to me.
If it’s best to write loan contract, would a solicitor need to be involved?
Also regarding to my first post, which bank account needs to draw out the cheque?
I would like to make an offer on a property, hopefully I can get a better understanding investing through a DT.Kind regards
You would need a binding loan agreement to make it all commercial. You could possibly prepare it yourself, or get a solicitor.
The getting the money and using it is hte tricky part, you would need to consult an accountant, but I would think you could get the lender to pay the money on behalf of the trust. If the lender just gives the money to the trust then you may have issues with the connection between the borrowing and the use of the funds.
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 st81hp79
Sorry if I may have mislead you there – I thought you were talking about a SMSF & trust for some reason, (must have been some of the other posts I was looking at earlier) rather than a 'non SMSF' one – which of course what I said doesn't apply to. As I have seen some SMSF special purpose trusts get into some serious issues with the above exact scenario I must have got a bit excited! Still make sure you do it all correctly and documented as has already been mentioned if you choose to do it this way.
Cheers
Thank you to all! This forum has been very helpful
I am going to see my accountant this afternoon to get his opinion before I sign any RE deals.
Cheers
Hi,
I've been following along with this post. I'm interested to know how what advice u got from your accountant. My accountant hasn't been very useful, so still looking for a new one.
I've been trying to find out if the discretionary trust with corporate trustee needs an ABN? and also,
If I onlend money to the trust, do I need a written agreement from a solicitor? Or could I just type this up myself.
Also, is this a div 7A?
Very confused?
Thanks
I don't think your trust would need one if just investing in residential property but your trust probably should have one. It takes 5 min to get and doesn't cost anything. If dealing with other businesses the ABN needs to be quoted.
You could probably draw up your own loan agreement.
Div 7A would only apply, I think, if the company is lending you money.
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 Terryw,
Thanks for the quick reply.
Hi 4jojo,
The advice I was given by my accountant and another accountant firm. They both suggested that a DT with a corporate trustee should have an ABN.
Regarding about the loan agreement, you can write the agreement yourself unless you wish to have a solicitor to draw up the contract.Also, from a solicitor’s advice I recently went to consult. A Div 7A only applies when you borrow money from a company.
But, a company can lend/ borrow from another company without a Div 7A.Hope I have helped you with your concern.
Cheers
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