Hi, im a novice in property investment. Much appreciated in you help with a few queries. Can you just donate fund to the trust? If you borrow fund from a bank and you buy units(property) from the trust and as years go by you are able to repay the bank, can you just donate the property to the trust thus bypassing CGT and from then onward rental income can then be distributed to the beneficiaries?
Hybrid trusts are extremely complex. You can gift money or property to a trust. If you are gifting real property such as a house then stamp duty would be payable and CGT would be payable if it applied.
To start distributing income to the beneficiaries the trust would have to start buying back the units from the unit holders. This would involved CGT as the units must be redeemed at market rates. There may be stamp duty as well. (in addition the trust may have to pay CGT when it sells the property later so double CGT). The trust may also be able to borrow to buy back the units and to claim the interest on this loan.
If the unit holders just repay their loan to the bank then they will be getting the same income with less expenses which may mean their positively geared. Just think of it as investing into units in a public trust – or shares in a company.
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
Thanks a lot Terry.
It seems that there is no benefit for a PAYG salaried person in term of tax benefit and asset protection with hybrid trust. You might as well buy a property under your name and pay the bank with interest only loan, thus obtain negative gearing benefit. And if you want asset protection then gift money to a family trust, aim to pay the property off quickly. In the early years expense is higher than rental income but in family trust the loss can be carried forward to the next financial years when the trust property is positively geared, which can then be distribute to the beneficiaries with the lowest threshold.Much appreciated if anyone can comment on above statements, whether they are correct or not.
also does any one know a good property accountant that they have used and they highly recommend and have office at Sunshine Coast Queensland?
There is little to no asset protection with a hybrid because the units are considered property and if they are owned by an individual then they could be up for grabs by creditors. The units also need to be held by the individual or no negative gearing is possible.
But, hybrid trusts do have many advantages.
1. They allow negative gearing, and
2. the units could be transferred to a discretionary trust or a SMSF or someone else without needing to change ownership. maybe stamp duty is exempt or reduced too.
3. the trustee could borrow to buy back the units = refinancing principle. This could indirectly allow you to claim the interest on personal expenses – but the draw back to this is CGT on the sale of the units to the trustee, but this can be minimised in many ways.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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