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Sounds good. Thanks for that feed back guys.
Cheers
Andrew
Terryw wrote:I think your accountant may not have it all correct.Hybrid trusts can work, but they must be set up in a way so as the trustee has no discretion whatsoever in distributing to beneficiaries while units are issued. This means to get the negative gearing benefits against personal income the trustee must be required to distribute all income to the unit holders including capital gains. So there would be no tax flexibility while units are issued.
Beneficiaries of a trust cannot be changed without adverse tax/stamp duty consequences. But with a discretionary trust the trustee can decide which of the class of beneficiaries to distribute to. (not in a hybrid).
There is little to no asset protection advantages in using a unit or a hybrid trust. This is because to get the negative gearing benefits the units must be held in the name of the person. The units are property of this person and would be available to creditors if that person went bankrupt. So the creditors would then get all the income of the trust.
Not sure what you mean by "you can pay into the trust which can then pay for expenses, entitling the usual tax deductions"
You should not have more than 1 director, usually, because it doubles the risk and decreases borrowing capacity.
The cost to set up quoted is very high.
There are other benefits with using a hybrid which you haven't mentioned:
– Units can be purchased back by the trustee of the trust and it can convert to a discretionary
– The trustee may be able to borrow to do this and claim a deduction
– Units may be able to be transfered to SMSF later without having to change legal ownership of the propertyIn NSW only fixed trusts can qualify for the land tax tax free threshold. A hybrid could be a fixed trust I think.
When a trust makes a CG the gain can be distributed as per the deed. If the trust is a hybrid with units issued then it would be similar to owning in your own name. If a discretionary then the gain could go to the lowest tax payers. Hybrids could also result in double CGT because the trust would pay CGT and the unit holder could also be required to pay CGT on the sale or redemption of their units.
Getting at the equity could be tricky if the hybrid is in the unit trust phase. I am not sure and would have to think about it. If it was a discretionary trust the trustee could simply borrow more money and buy more property or onlend etc (if deed allows).
G'day Terry
I understand that units of a hybrid trust don't offer much asset protection but what about this scenario:
Property is bought in a hyrbid trust, the units are owned by an individual but the beneficary of the trust is a company structure. That company is then the structure used to rent out the property and it collects the rent money, if the tenants took out legal action against the company (as they rent the property from that structure) are the units owned by the individual for the rented property up for grabs if the compnay is sued?
I hope this makes sense.
Regards
Andrew
Ok, I understand that it won't increase my borrowing capacity, but will it enable me to borrow to within my capacity in one trust, then open another loan for another trust and borrow to that maximum capacity for that new trust as well? Or will I be maxed out by the first company/trust loan?
Also, what trust structures are traditionally used in this type of lend as I use a hybrid trust. What do lender's not like about lending to company's linked to a hybrid trust?
Thanks for that Richard.
To confirm, I can set up a loan in the name of ABC Pty Ltd ATF DEF Proprty Investor Trust with my name only being down as guarantor? Now for the big one, does this or does it not affect my personal borrowing capacity?
Ok, so the loan must be taken out by the company ATF the trust? Makes sense. Has anyone had any experiences doing this? I haven't been able to find a broker who doesn't want it in my name.
Can anyone confirm if they have paid stamp duty when adding a director to an existing trust? My accountant has warned that I may be liable for stamp duty etc if I add another director but I won't know until the application is lodged. Does this sound right or am I being led down the garden path? I thought one of the best aspects about having a trust was the ability to easily add another director. I don't see how I end up paying stamp duty again when the property has not been exchanged.
Hmmm, sounds simple enough. However I have been told that if I take out a loan to buy ordinary units in the trust I can then claim the interest against net rent distributiions from the trust. Given that the property is negatively geared I can then offset the loss against my own income. I have been told this will work with me as the borrower whilst the coy atf trust guarantors the loan and owns the property.
Would this be workable with the ATO?
Thanks Terry
Hmm, so basically I have to ride out paying my own money into the trust until it becomes cash flow positive otherwise put the property in my name which isnt my preference.
Thanks for that Terry, makes sense!
So a workable (and legal?) solution would be to buy property in a trust, take out a loan in my name, then essentially lend the money to the trust and the trust pays me back exactly what my repayments are? I then claim this on my own tax return, the trust carries the loss if it cant pay back the repayments as I would? This way the difference in loan repayments/rent is paid by me but I claim the whole interest amount. Is this right or have I gotten side tracked here?
Thanks heaps mate
G'day Terry
Thanks for the informative answers. I have a few questions if you don't mind.
If I have a property investor trust established with a Company as the trustee and I buy a property that is not positively geared, does this mean that:
1. I will have to personally pay for the difference in loan repayments vs income from property (plus expenses)
2. I assume the money that I pay into the trust to cover costs is not deductable in any way for my personal tax returns
3. I understand that the company will quarantine the loss until it one day becomes positively geared
4. Can the company still claim for things like depreciation etc.
5. I intend to keep the property indefinitely and ultimately it would become positively geared. I am assuming this is when the company would start paying back these losses to the ATO?Thanks heaps for your time/contributions. I have learnt alot from your previous posts.
Andrew
