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Turning a PPoR by selling to a Trustharrycat [4 Posts] I was hoping that someone could give me their opinion on our strategy. We have a PPoR fully paid off – value approx $650K. We have just bought a new PPoR (mortgage of about $750K) but in between buying the new place and putting our current place on the market the Brisbane RE market has cooled somewhat. We had intended to buy an IP towards the end of this year but then I read some references on this site about turning the PPoR into an IP by selling into a Trust. We are tossing around whether to set up a trust and sell the current PPoR into it and making it an IP. What are the limitations on doing this? Thanks Qlds007 [4117 Posts]  Hi Harry It is a strategy we have used for literally dozens of clients however in saying all of this it is not for everyone. In essence the property is sold into a Trust structure with the loan being taken for the full current market value. As the total amount of the loan is used for interestmest purposes the entire loan interest becomes a tax deductible expense. The downsides include the additional stamp duty as mentioned and the fact that your original PPOR will be liable for CGT if sold down the track. If however you intend to stay in the new property for a few years you will recoup these expenses several times over and have the start of a nice property portfolio. In saying all of this with the pu Cheers Yours in Finance   Terryw [6409 Posts]  When did you buy the PPOR? It it was before 1985(??) it may be CGT exempt. Transferring to a trust will enable the trust to claim the interest, but it would probably be negatively geared and trusts cannot distribute losses so the trust will need other income to offset the loss or you would need to roll the losses forward to be offset by gains in future years. Also, you may have to pay more land tax if you use a trust. it is still worth looking at, but you need to bear these additional costs and problems in mind when deciding, Terryw harrycat [4 Posts] thank you very much for your comments. we have been advised that a unit trust would be out best option as opposed to a discretionery trust. off to see the accountant next week. thanks again for your comments. cheers Terryw [6409 Posts] Harry Unit trusts offer no asset protection. The units are property which can be seized by creditors if the unit holder is sued. They also offer no tax savings as the profit of the trust must be distributed in accordance with % unit ownership. Therefore, some people have their units owned by a discretionary trust to get around these 2 issues. Terryw harrycat [4 Posts] hello terry Terryw [6409 Posts] Hi Harry But your units would still be at risk, and hence the property if you are ever sued. Since you run a business through a discretionary trust you should not be too much in need to personally deducting interest on the property loan. You could form a new Discretionary trust and buy the property in this. There would be a loss and no tax saving, normally, but if you have another DT, it could distribute to this new trust first to offset the loan and then any income left could be distributed to family members. This would result in the same tax savings and give you asset protection - but could result in more stamp duty depending on the state in which your properties are in. Terryw mark58 [1 Posts] Richard. I am interested in doing something similar ie creating trust structure for my PPOR to become an IP. This would be my first investment!! I am interested in the following comment........ As the total amount of the loan is used for interestmest purposes the entire loan interest becomes a tax deductible expense. Does this mean that the deductions could be used by me on my Personal Tax Return and if so does that mean that all other costs contribute to the negative gearing?? Qlds007 [4117 Posts] Mark Does this mean that the deductions could be used by me on my Personal Tax Return and if so does that mean that all other costs contribute to the negative gearing?? Yes Cheers Yours in Finance Terryw [6409 Posts] mark58 wrote:
I would say it depends. As the trust will be being the property, the trust would get the deductions normally. If the trust only has rent as income, then there will probably be a loss. This loss cannot be distributed to your personal income. A way around this is to use a unit trust and borrow to buy the units, but these have many disadvantages. Terryw |
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