structuring assets

Have a look at my first few newsletters, I have covered ownership and other structures.

Sorry Dave, I didn’t realise that I haven’t got a link to them on my personal site. But they are here on my finance company site:
http://www.loan-experts.com.au/article/

Dave, sent you response to pm as well.

Dave

Thanks for the comments about the newsletter, I was planning to cover trusts and companies in future editions.

A company is a separate legal person and has its own tax return done each year and pays tax. Any directors would need to give personal guarantees and this counts, from a servicing point of view, as if you took the loan in your own name. So a commpnay would effect you servicing just as buying in your own name would. A company pays a flat 30% tax so if your personal taxable income is such that you would pay more than 30% tax on any income from the company (wages, dividends etc) then you may leave the money in the company and cap the tax at 30%. You can then get it out at a later date when your income is lower.

A trust is not a separate legal person and is not an entity, but a relationship between the trustee and the beneficiaries. A company would buy property in its capacity as trustee. A trust will have its own tax return but generally does not retain any income and won’t be taxed. All income will flow out to the beneficiaries – which might be you and you might pay more tax. Or it may be distributed to a comapny and capped at 30%.

generally a company is not recommended to hold appreciated assets as the CGT will be 30% whereas if you had a trust or your own name it could be a max of 45% x 50% + medicare.

But there are many things to consider when structuring, a major one being land tax.

See my book for some information on trusts. link is in my 3rd newsletter (free download).

blackhotel

Your post is only partially true.

Company can work in many instances. A company gets its own land tax threshold in NSW and many states so this can save land tax. No 50% discount may not be an issue as company tax is 30% and CGT a max of 24% so just a 6% difference. But a company can retain income and pass it out as dividends in future when the shareholders have lower taxable income with franking credits. Also some instances there is no CGT, just income – such as developers.

For the land tax you must be referring to land in NSW? If QLD a trust does get its own threshold so a trust can save land tax there. Also in NSW if a person has used up their tax free threshold anyway then land tax will be payable at the same rate if the land is owned personally or in a trust.

I just advised a client tonight whose accountant got the NSW land tax wrong and she is up for about $3000 pa when he told her she would have none. Its complicated.

per wording. I should have said may not be such an issue.

top tax rate is currently 45% but if asset held for 12 months a 50% discount – 22.5 plus medicare which could be 2% = 24.5%
https://www.ato.gov.au/individuals/income-and-deductions/how-much-income-tax-you-pay/individual-income-tax-rates/

If a company owned the tax rate is 30% so 5.5% more, but the land tax savings could have made up for this…and company can retain income and distribute to you later (if u are shareholder) and you may get back some of the tax paid in the form of franking credits.

thanks for the feedback. I tried to make it easy to understand. Wait till you read my trust book and asset protection book, I am making these complicated.

Trusts do give land tax advantages, asset protection but not generally borrowing power advantages (indirectly they can).

Asset protection – what are you trying to protect from? If it is creditors then insurance won’t help you for court judgments from breaches of contract, defamation etc. But insurance will help if a tenant is injured on a property you own – in most cases, not all. Not the same at all.

Not sure what you mean about posoitive gearing as this wouldn’t change anything.

You can get my latest newsletter here
http://www.loan-experts.com.au/article/ which has a link

or via my tax company, the book “Tax and Trusts for Property Investors” can be downloaded here:

http://www.propertytaxsolutions.com.au/

• This reply was modified 10 years ago by  Terryw.

Asset protection is usually associated with protection from potential future creditors. An interest in a discretionary trust is not something that amounts to property so if a beneficiary went bankrupt the creditors won’t generally get access to the property of the trust. Business people are at a significant risk of potential bankruptcy, but non business people can and do go bankrupt too. I have seen a few go down – due to credit cards, court cases about defective cars that they lost, contractual disputes, loan defaults etc.

Also consider asset protection in death. Trust assets do not form part of the estate on death, so don’t pass via a will. If a will is invalid or challenged then generally trust assets are safe (except in NSW potentially).