Commercial Property Taxation Issues

Hi

Am new to this. Need some help. We have bought 50% of commercial property.

We have 2 loans - 1 is 50% of a 30% deposit. ($112,500 our share) (in my husband and my name secured against our home used against this loan).

Then the next loan is joint with other owner. (total of loan is $525,000 - of which we owe 50% $262,500)(2 family trusts - ours and the other owners own this property. (the loan secured against the other owners business).

We will get rent paid into trust and then this will pay the exact amount owed by the joint loan 525k amount or our 262.5k amount. So we only have to pay repayments on our deposit loan of $112,500.

We have two TFNs one joint one separate.

Not yet settled but offer accepted and settlement in Sept. We have taken early occupancy but settle later.

We completed renovations at 25k total and paid stamp duty at 17k.

We completed tax last night our H&R block man annoyed we set up a family trust. As He believes we will have negative geared trust? We wont be able to get any money back and the 25k renos and 17k stamp duty sit in trust until we sell.

Help help help - what can we do?? The H&R block man thought we should of bought property in our own personal name and then could claim against our personal income. Are there ways to manage the trust better or to suit our situation, I guess claim expenses at tax time would be helpful and how to make trust have money so positive gear??

Any input be helpful as new to this.

Thanks

Why are you using that company? and why would you take tax advice from them?

Would you take advice on nutrition from a person who worked at KFC?

Regards

Terryw

I would suggest you think long term. How long would the property be negatively geared?

Regards

Terryw

I guess up until now we were not playing with the big boys so H&R worked ok for us! (cost wise).

In regards to how long the property will neg gear I am not sure, as we did not think this would be happen.

Thats the problem. We thought both loans would be in trust and the rent would cancel one mortgage repayment and the deposit loan would assist in reducing our taxable income and able to claim expenses such as stamp duty, renovations, trust set-up, LMI.

With the expenses in the trust being 25k reno + 17k stamp duty - we would be at a 41k loss before we start receiving rent!

You personally borrowed money and onlent to the trust so the trust should be able to claim the interest on this loan. BTW, you should have a written loan agreement with the trustee.

The expenses for the reno and stamp duty would not be deductible outright. The stamp duty would be a cost to be claimed against a capital gain when you sell, and the reno would be depreciated costs. So you wouldn't have such as large tax deduction as you may have expected. This may mean the property won't be making a loss.

Regards

Terryw

Thanks Terry, I knew that there would be a way and you have just confirmed to me that I need to seek professional advice as I thought. You get what you pay for - aint that the truth!

I have yet to set up the trust bank account, so would I do this asap then transfer the deposit $$ into trust account?

I guess I am asking how to onloan to the trust to then claim the interest?

 You probably should enter into a loan agreement with the trustee and then you could just pay the funds directly where needed.

Regards

Terryw

Thanks Terry, appreciate your time.

Regards
Tammy

Hi...
The expenses for the reno and stamp duty would not be deductible outright. The stamp duty would be a cost to be claimed against a capital gain when you sell, and the reno would be depreciated costs. So you wouldn't have such as large tax deduction as you may have expected. This may mean the property won't be making a loss.

Chicago Lincoln Park Real Estate