Hi,
I am starting my investment journey and I am thinking of setting up a trust for my investment properties for purposes of asset protection and avoid any future family feuds over property. Most of the investment properties are to buy and hold, so capital gains tax won’t be an issue. If the properties are in Sydney, they will most probably be low yielding.
However, say in 10 years (for example) I accumulate X number of properties with a land value of 2 million under the trust, that means I need to pay about $25K per year – out of pocket!
The question is, for those who are investors who have set up a trust, is it still worth while for me to purchase property under a trust and pay $25K to the government?
Can you give me some hypothetical numbers comparing income generated from investments under a trust vs the land tax paid? (Low yielding properties in Sydney metro vs high yielding in rural areas).
Also, how is land tax calculated? Is it market value of the home minus the cost of replacement of the home or is it calculated differently?
Thanks
SnowLionzIn NSW there is no threshold for trusts. individuals, companies and SMSFs get the threshold whic is currently $412k.
Once you hold land exceeding this in your own name you will pay land tax anyway.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 Snowlionz,
Also, how is land tax calculated? Is it market value of the home minus the cost of replacement of the home or is it calculated differently?
I can only answer for Qld (NSW might be different) – up here, the Land Tax is paid as a percentage of the UCV applied to the land (that is the Unimproved Capital Value – the supposed value of the land if nothing was built on it – found on our Rates Notices).
The more you own, the higher the rate of Land Tax. Also, in Qld, the Land Tax rate is higher for a Company or Trustee than for an individual – $2million of land would cost $21k a year for an individual, but $29.5k for a Trustee.
Check out the NSW Office of State Revenue site for what applies to you,
Benny
Hi SnowLionz
You may want to read the link below regarding land tax thresholds and trusts in NSW. In Qld the land tax threshold is $350,000 for trusts or $599,000 for individuals. This is based on the value of the unencumbered land.
I personally create new trusts for purchases taking into account land tax thresholds. This is something I suggest you consider before making any purchasing decisions.
http://www.osr.nsw.gov.au/sites/default/files/file_manager/ofs_lt12.pdf
Kylie Walsh | PPI Investment Advice
http://ppiinvestmentadvice.com.au
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Hi All,
Thanks for your replies. That answers my questions about land value calculation.
I went to a seminar and they said that as an individual, I could purchase 1-2 properties in each state, taking advantage of the land tax threshold for each state, hence paying no land tax if I diversify into each state.
This seems like a good idea, but it does not provide any asset protection compared to properties under a trust.
I think I just need to weigh up the advantages and disadvantages of purchasing under a trust and do that in the context of my situation.
Thanks
It is still possible to get good asset protection while owning a property in individual names.
Since land tax is imposed by state legilsation the rules vary from state to state. So first you should decide which state you will be looking to buy in and then decide the structure.
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
FYI: Another thing with trusts, although negative gearing cannot be claimed, losses can be later offset again future capital gains (reducing CGT). Also in a trust, income can be distributed amongst beneficiaries – this means that you can minimise income tax on profit from investments.
Hence the disadvantages of trusts are offset by its advantages – I will definitely be purchasing under a trust.
Kylie, thanks for the info about tax free threshold for trusts in QLD.
Does each trust get it’s own tax free threshold in QLD (ie 3 trusts would receive 3 x $350,000 in tax free threshold)?
Snow, a trust can negative gear like any tax payer. It is just that a loss in the trust cannot be used to reduce the income of another tax payer.
A trust in QLD gets a separate threshold and separate trusts can each get a separate threshold. But there is a trap for young players as trusts can be aggregated for land tax assessment under certain circumstances. needs to be non identicle trusts with different beneficiaries – beneficiary has a special meaning too.
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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