Accountant Needed!

Amir,

They are right! You cannot distribute a loss from a trust, so to access the (so-called) benefits of negative gearing, namely to offset the income loss from the property against your other taxable income, you will need to buy in your own name.

Are you wanting to negatively gear?

Bye,

– Steve

Amir,

Thanks for clarifying. If you go into a project with the intention of ‘turning it’, say a renovation or subdivision, then it is unlikely to qualify for a CGT discount, as you may hold it for <12 months, and even if you don’t, your intention is not to hold it for long term gain, but to buy-improve-sell, and so the profit is likely to be an ‘income’ profit rather than a ‘capital’ profit.

Just on a point, you can’t make a (real) profit and not pay tax on it!  Or, if you want to defer your income tax on your salary income via real estate losses, you have to make a real loss against an unrealised profit (i.e. the negative geating strategy).

So, back to your situation… as I see it:

1. You want to do value add projects for quick-turn profits

2. You expect to make a profit from improving the property, as opposed to a long term hold

3. You may lose money in the short term holding it, but your intention is for the improvement profit to exceed those holding costs

4. You hope to use those near term losses to offset your other taxable income (i.e. salary income)

5. You want to distribute the profits to your parents as part of an income splitting plan

Give the above, if you buy in your own name you can do 1, 2, 3 and 4, but cannot do 5.

If you buy in a trust you can do 1, 2, 3, and 5, but not 4.

Therefore, it’s up to you to figure out what combo of options you want more.

In respect to capital gains, as I said, it is more likely the profit is not capital, but rather income. Regardless, if you think it could qualify for a CGT discount then this would be available (subject to meeting the eligibility requirements) both as an individual, and distributing trust income in the form of capital gains to individuals (i.e. trust distribution).

It can be hard finding an accountant to assist. First, get clear on your strategy, then seek an accountant to support. That is, make sure you ask the right person the right question.

– Steve

You shouldn’t go to an accountant to set up a trust as this involves legal advice. An accountant, assuming they are a registered tax agent, can only advise on the Commonwealth tax aspects. You would need advice on the structure of the trust, who the trustee should be, injecting funds into the trust, succession on incapacity and death, stamp duty, land tax, asset protection and family law etc – in addition to tax.

See a lawyer

This might be one of those professional demarcation issues.

I’ve always used an accountant to arrange my new structures.

Whomever you choose, make sure they’re experienced and knowledgeable.

Regards,

Yes plenty of accountants do set up trusts. But they have no qualifications or licensing to do – a hairdresser is just as qualified.

The accountant will argue they are not giving legal advice, but just providing a document drafted by a lawyer. If so why not go directly to the lawyer who can tailor the trust to suit your needs, advise on who should take what roles, terms of the deed, be able to modify the deed and more importantly be covered by insurance.

I think we’re just going to have to disagree on this one Terry.

Regards,

Steve

No. I wouldn’t, that’s true. I went to a lawyer and got good advice and a tailored document. But accountants don’t offer to do wills, as far as I know! Maybe that is an emerging opportunity for them.

Here’s what I’ve found happens pratically though re: trusts: accountants tend to work with a good lawyer (or major law firm) to get access to their latest and greatest trust deed as, as you have mentioned, lawyers typically are experts at law, but not tax, or accounting, succession planning, or in many cases, practical business operational matters. This latter part is then ‘wrapped around’ the trust deed to provide the best of both worlds: a trust deed that works, and accounting assistance with tax and succession planning.

Bye for now,

– Steve

Well, let’s agree on what we agree on: that accountant’s cannot give legal advice.

As for the rest: lawyers, in my opinion, usually run good legal practices (small businesses), but otherwise make poor accountants, business advisers, and financial planners.

Just look at government: beset by ex-lawyers who argue for the sake of arguing, while the rest of us get on with the job.

That said, accountants stare at numbers too much and often make decisions from ivory towers.

People just need to find an adviser they feel they can trust, and go in with their eyes open. Hence, I think our discussion has been useful in achieving that goal. Thank you.

I guess I mean a lawer usually makes a good lawyer, but that is not necessarily the same as a good business person.

And perhaps you and I see the use and role of an accountant differently. You seem to narrow the application to compliance. That would be the same as saying that a lawyer is really only a word processor, or a filing clerk.

Naturally, you have a bias as a lawyer, and I have a bias as an accountant.

Setting aside our personal and professional bents, my recommendation for someone seeking to decide on their right structure would be wise to seek advice that ties the desired end with that person’s affordable means.

And that’s knock off time for the weekend for me, so allow me to finish with this:

An accountant and a lawyer were laying on a beach in Tahiti sipping mai tai’s.

The lawyer started telling the accountant how he came to be there.

“I had this property in Pitt Street, Sydney that caught fire and after the insurance paid off, I came here.”

The accountant said, “I had a city property, too, in Melbourne. It got flooded so here I am with the insurance proceeds.”

The lawyer took another sip of his mai tai, and then asked in a puzzled voice, “How do you start a flood?”