I am intending to purchase my first of many investment properties in the near future and was hoping to get some advice regarding the best ownership structure. I understand the benefits of trust ownership for asset protection and tax minimization and am planning to use this structure to purchase properties. However how do trusts work in regards to initial costs and losses, i.e. are the purchase costs and expenses initially incurred by me personally tax deductible, or does the trust structure void this link? If the investment was negatively geared are these expenses a tax deduction?
I am also wondering if anyone has a recommendation for a lawyer and/or accountant in the central Melbourne area who is experienced with investment properties.
Thanks
I have read a few good books:
-Trust Majog by Dale Gatherum-Goss
-How to Legally Reduce your Tax by Ed Chan & Tony Melvin
-Family Trusts by Nick Renton
-What every Property Investor Needs to Know About Finance Tax and the Law by Micahel YardneyThese books are quite good and cover lots of things. The questions you asked relate to the fundamental principles of how different types of trusts work and so you might be well served by having a read of these books to help you understand how they work, what you can claim, and how your personal finances and tax relate to the trusts finance and tax.
Cheers,
LukeThanks Luke, I'll have a look for those titles.
johnoj wrote:I am intending to purchase my first of many investment properties in the near future and was hoping to get some advice regarding the best ownership structure. I understand the benefits of trust ownership for asset protection and tax minimization and am planning to use this structure to purchase properties. However how do trusts work in regards to initial costs and losses, i.e. are the purchase costs and expenses initially incurred by me personally tax deductible, or does the trust structure void this link? If the investment was negatively geared are these expenses a tax deduction?I am also wondering if anyone has a recommendation for a lawyer and/or accountant in the central Melbourne area who is experienced with investment properties.
Thanks
You must distinguish yourself from the trust. Just think the trust is another person, for example.
If Bob purchased a property could Bill claim any deductions? Nope.
If Bob makes a loss can this be used to offset Bills income? Nope – generally, but there may be limited ways around this.
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
johnoj wrote:However how do trusts work in regards to initial costs and losses, i.e. are the purchase costs and expenses initially incurred by me personally tax deductible, or does the trust structure void this link? If the investment was negatively geared are these expenses a tax deduction?The purchase costs are not deductible, eve if the property was purchased in your own name. They are a capital cost, and form part of the cost base.
Expenses are deductible to the trust, as the owner of the property. If a Discretionary trust makes a loss (ie – expenses are greater than income) then the loss stays with the trust, to be offset against future profits. A loss can not be distributed to beneficiaries.
I am accountant in the area of financial reporting and we are governed by the Australian accounting standards board and per the aasb we are allowed to capitalize interest on costs such as interest. Can interest be capitalized for property development by tax legilation and form part of the cost base? Thanks
Aallii
In some cases yes.
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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