Hi There
I'm looking to set up a company / – family trust for buying my next investment property.
I know there are many types of trusts out there, which I need to more fully research and appreciate.
My quick question is – Do you have to pay tax on rental income earned from the property from day 1, or only once the property is positively geared (so to speak) ie: – bringing in an amount of rent that is greater than what has to be repaid on the loan.
(I'm trying to quickly crunch some numbers here on what my expenses would be and if I would only be looking at bank loan repayments or if there would be income tax on the rental income earned from the property regardless of what loan repayments i have (positive / negatively geared )
Hope you can help
you will only pay tax in the hands of the beneficiaries ie if you make a profit and distribute it, then the beneficiaries pay the tax (if you don't distribute the profit, the trustee will pay tax at the highest marginal rate). The bad news is you can't distribute the loss if you are negatively geared and you will also pay land tax.
If the trust makes a taxable income after expenses then tax will be payable. Who pays depends on the terms of the deed and when the beneficiaries become 'presently entitled' to the income. This can occur before they actually receive the income. “Presently entitled” basically. means a right to demand immediate payment of the income.
If no one is presently entitled then usually the trustee would be taxed, or maybe default beneficiaries depending on the deed.
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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