Asset protection Question smart property owners !

Ill list the pro/con of each structure – hopefully it provides a solid answer to your questions…
The trust i be focusing here is the common FAMILY trust only + with a personal trustee ( compared to corporate) – another trust and structures works differently and have their associated pros and cons.

Buying under personal—-

**Pro**
– Land tax threshold
– Negative gearing benefits
– Capital gain discounting/ waived
– Deprecation
– Any lost can be carried forward to your personal income assessment
– No maintenance cost / set up

** Con**
– Profit taxed at personal full rate, so if your a high income earner then it’s >40%
– Income split and tax benefits are set as per sale contract
– Personally liable for the property/mortgage

— Buying under Trust with Personal trustee—

**Pro**
– Not personally liable, the trust is – which is a separate entity
-Ability to split the income as you wish to the nominated beneficiaries
– Being a separate entity the land tax threshold starts at the bottom again ( only a pro for investors with over 1.5M in property under their personal)

**Con**
– Any lost can NOT be carried forward towards your personal income assessment
– Maintenance and set up cost (low)
– Capital gain tax at full rate

—-

Regarding what your accountant is saying- it’s hard to comment as your accountant is the professional + he knows your personal circumstance. But taking a punt – > If the property is NOT positive geared enough then you will NOT see any benefit using the trust BESIDE the asset protection benefit.

Example: ( average cost/ sample only)

Rent received – $300 per week = $15,600 PA

Depreciation benefits = $4000 PA
Interest repayment = $11,000 PA ( 6.55% -80%LV)
Bank fee and charges – $300 PA
Maintenance issues/strata/ repairs/ Agent fee- $2500 PA
Insurance- $500 PA

Cash flow = $2,700- ( Negative)
You will get $0 from the trust, as this lost can not not carried to your personal income.
It will take a while before your rental catches up to become positive.

Your accountant saying $70,000 is a bit “open”…he should have told you and given you a figure for the rental yield.

Because i can can have $70k income in rental btw 2-3 properties and still make a lost, but with 2-3 properties it will be much quicker for the rental to catch up.

Regards
Michael

Sounds like your accountant doesn't understand structures very well – or you have misinterpreted him/her.

It is certainly not a good idea to use a company to hold appreciating assets for a number of reasons.

A discretionary trust is totally different however.

a mere profit of $2000 in a trust could make it all worthwhile. eg. a property in your name at the top rate rate with a $2000 profit could result in almost $1000 in tax. Whereas if it was in a trust could result in no tax at all.

Then consider the future growth as well.

As for asset protection it is not just as simple as setting up a trust it is but how it is set up and how you use it. I can think of around 10 ways that a trust could be attacked if done incorrectly.

In my banking experience, I have seen over 50% people establishing trusts for wrong reasons or due to wrong advise. The legal structure is determined by the total Group/ Family income keeping in mind that you won't face any trouble getting the funding due to your legal structure. If you are an investor who goes for LMI all the time, a purchase under company/ trust structure may not be possible.

What you really need is a good 'tax accountant' not an accountant who files tax return.

Hi Richard,

This is because you won't be able to get LMI under Co/ trust name.

Also a residential loan under Co/ trust name will be funded by small business bankers at most of the banks (unless you can find a smart personal banker who can process transaction under these entities).

Under these structures banks wil be able to fund the loan (up to 80% LVR) so long servicing is met and Directors/ trustees guarantee is available.

Hi anand

Sorry i have never heard so much rubbish in all my 25 years of being a Broker.

Neither of the main mortgage insurers have any problems in providing in cover where the applicant is a Pty Ltd Company ATF a Trust structure so i am unsure where you get our information from. 

Also upto 95% lvr is available thru the normal residential distrubution channels without the need to go thru the back door of some business banker.

Cheers

Yours in Finance

Richard, Which major banks you would use for this type of transaction? And would you be seeking mortgage insurance directly from the two active providers in Australian market?

As a volume producer we may get more beneficial terms than other brokers but as an example did a 95% lvr for a forum member with Anz this week at a purchase price of $685K in  Pty Ltd structure.

We are directly accredited with the Bank so couldnt quote their standard terms thru an Aggregator.

Wesuck i understand dont like doing them but NAB are fine and so are Homeside and the Dragon.

Then we think outside the Big 5 and i can think of 6 lenders off the top of my head who have no problems.

As i say i have been in the industry for 25 years and usually in the top 100 Brokers by volume in the Country so might get more favourable terms than most but i doubt it in the current climate. All we normally get is quicker service / processing times although sometimes it makes you wonder.

Cheers

Yours in Finance