[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

January 20, 2006 - 4:15 am

I think that settles the issue.. It’s not that big a deal anyway since the trust isn’t doing anything or owning anything, just passing through distributions.

Thanks guys

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

January 9, 2006 - 1:35 am

I was told by a representative of Castle Corporate, a well known company that supplies trust deeds, shelf companies etc, from Melbourne.

The giftor will not be registered as a settlor but will supposedly be treated as one for the purpose of ‘not being able to ever be a beneficiary’.

I would like to read the specific legislation, but I’m not sure where to find it since it’s a matter of trust law, not tax law

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

January 4, 2006 - 1:22 pm

Ok, this is the story as I understand it after finally hearing back from the ATO and doing a lot of reading in their database of 1936 legislation..

For discretionary trusts, unless you have a family trust election, basically any change to the potential beneficiaries will cause all quarantined losses to be void. This makes it very tricky to reliably quarantine losses in discretionary trusts unless the list of beneficiaries is limited and not dependent on the identity of the trustee etc (if you are ever considering swapping trustees).

If a family trust election is made then the beneficiaries are effectively ‘locked in’, which means that the ATO accept that the beneficiaries will not change and ignore that test.

Further, even if beneficiaries remain the same, the distribution pattern (for both income and capital) can only vary slightly from year to year, so if you distributed 100% of income to your wife one year, then have a year in the negative, then in the following year you offset those losses against income in that year, you are only allowed to do this if you distribute at least 50% of the profit to the same person who recieved distributions in the last profit year (your wife in this case).

I’m guessing the reasoning behind this is to protect the entitlements of the ‘new’ beneficiary from losses incurred in years of trading where a different individual was entitled to the distributions. It makes sense from that perspective however it makes it very dificult to simply use alternative tax brackets out of convenience in a discretionary trust where losses may be trapped for a while…

The pattern of distributions test applies to any discretionary trust, regardless of whether a family trust election has been made.

For unit trusts the same test applies if there are discretionary unit classes (income or capital), or if the unit trust is a hybrid with beneficiaries.

In addition to the distributions pattern, the ownership of units in a unit trust may also only change so much from year to year (this would replace the changed beneficiaries test I presume). Basically, if units have been transferred, if new units are issued, if existing units are revoked, or anything else have happened whereby the ownership balance of either income units or capital units have changed by 50% or more from the last year of profitable trading, then losses from previous years can no longer be offset.

There are a tonne of other rules as well, but these are the ones that I would be most likely to trigger. The bottom line is that if your trading or distributions patterns, or unit ownership are likely to change significantly then you can pretty much forget about quarantining losses in trusts. However, if you make sure unit holders or beneficiaried havn’t changed, and you are careful about where the distributions end up in the first profitable year where you are applying quarantined losses then you should be ok.

Cheers,
Carl

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 30, 2005 - 4:07 am

Well the ATO didn’t get back to me, huge surprise… I will be speaking to my accountant in the next few days anyway so I’ll see what he says.

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 21, 2005 - 1:59 am

Yeah I’m able to shift any amount of income around the ‘black hole’ of deductions so to speak, to make sure I look like I’m not making a personal loss and to use various tax free thresholds etc.

I’ve checked with the ATO, they think it’s ok to quanantine the losses but they will verify and get back to me within 48 hours.

Cheers,
Carl

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 20, 2005 - 11:45 am

Might have to give the ATO a call.. Even though every time I speak to them I feel creepy, like the call is being recorded and saved against my file

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 20, 2005 - 6:54 am

I thought I’d get an answer right away.. Doesn’t anyone know this?

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 20, 2005 - 2:39 am

My first kick ass year, no property or anything until this year!

1) Settled my first property (Richmond Vic) in May (as PPOR, thanks for the grant Johnny).

2) Got most of my tax back thanks to Timbercorp

3) Partly restructured my IT business which is trading as trust (lets make things more complicated)

4) Pooled my super and invested in the most aggressive place I could find (I’m 27), and stopped contributions

5) Refinanced IP, using all available equity with margin loan into combo of resources shares, gen. au shares, int shares and LPT until next settlement comes up.

6) Determined (and in the process of establishing) trust structure to use for long term investment strategy (thanks guys for all your INVALUABLE help in this area)

7) Moved out and rented out IP last week

Exchanged on next property (North Melbourne) this morning

My balls are firmly back on the line where they belong!

Have a great Christmas everybody. Lets make next year even better!

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 20, 2005 - 2:17 am

Res IP 90% (aiming for 80% for the long term)

Shares 60%

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 7, 2005 - 5:15 am

What about this then; Say the company that is to be the trustee existed before the exchange however the trust did not. The contracts are signed either in the company name, or ‘and/or nominee’. Between the exchange and settlement a trust is created with the company as trustee. At settlement the appropriate paperwork is done related to the property being held in trust. Would this be ok?

Otherwise another option may be to buy an older, clean, ‘shelf’ unit trust of some firm, I’m sure there has to be somebody stock-piling these.. In an absolute worst case scenario perhaps this shelf trust could keep it’s original trustee through settlement and then change trustee to ABC P/L created whenever. This is obviously subject to cooperation by the firm supplying the trust, I think it would take more than kind words to make that happen.. But if it avoids double stamp duty on a 500k property there is a bit of a margin to play with.

Your thoughts?

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 5, 2005 - 6:25 am

Ok, here is another hypothetical one; what if a trust was created last year or whenever, and the deed was written in such a way that appointor could be changed at a later date, thus effectively transferring control of the trust to a different entity.

If a contract was signed today and/or nominee, then the trust was transferred into the person’s control who signed the contract, then there should be no legal reason why the trust could not hold the property, am I right?

I realise that if you want a corporate trustee you may need to also buy a shelf company that was incorporated at a date before the exchange of contracts, since after all, it’s the trustee who will be on title.

Or, in a worst case, you may need to use a different company or yourself as trustee momentarily, then create a new company and change trustees after.

Any comments?

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 2, 2005 - 2:02 am

I’m not making an offer to a private seller, but rather taking part in the process of buying up a number of properties from developers in trouble and hanging on to one myself. A good way to get a decent discount and not have to put much cash into the deal.

The initial contracts will probably be signed and/or nominee by someone else anyway, who will officially onsell to me. The only thing I was confused about is whether or not I can establish the appropriate company/trust structure in the period between signing contracts and settlement.

All things considered I’m tempted to get the trusts organised well in advance now just in case. The temporary savings will not be worth the risk of screwing it up

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 1, 2005 - 8:49 am

I guess it’s one of those things, don’t do it unless you’ve got a good reason. Thanks for your input Dazz.

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 1, 2005 - 7:46 am

Thanks for your input bjb007.

Cata, in my situation there would be no need to sign and/or nominee if the trust was in place, unless you just wanted to do that ‘just in case’. Who knows what can happen by settlement…

Cheers guys and thanks again.

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

December 1, 2005 - 12:25 am

Hi Cata

Some accountants have told me that when you use and/or nominee the nominee must be an entity that existed at the time that you signed the contract. The logic being that you can’t intentionally nominate something that doesn’t exist. But you think this is ok as long as the entity is set up before settlement? That would be more convenient in my situation…

Cheers,
Carl

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

November 30, 2005 - 9:11 am

I’m with high flyer, I recon Ed’s taking a unit and a hybrid trust combo and dressing it up as one trust. I’ve thought so since the first time a friend of mine went to one of his seminars almost a year ago, but nobody seems to be able to tell me (Ed least of all).

If this was indeed the case I would find it rather disappointing since people like Chris Batten (www.chrisbatten.com.au) have been using this structure openly for a long time. Just read their “poison property” page. The link is in the bottom right hand corner of the homepage. Here is some text from there:

“How to avoid poison your property

Don’t acquire your property in your own name, in a discretionary trust, company or jointly with your spouse. To avoid the above problems the residential investment property would have to be acquired in a unit trust. The unitholder of the unit trust does not have to be your superfund. It could be a hybrid discretionary trust for negative gearing purposes, whereby at some time in the future your superfund will become involved.”

That’s what I like about Chris Batten, they are not marketing any secret magic tricks, just good solid accounting. If they were based in Melbourne I would be using them already.

There are a lot of other pages on their website with information that I though “damn, about time someone just told me that straight up”. Have a read if you have time, and let me know what you think.

Seriously though, for someone like me who feel the need to get to the bottom of things there is nothing more frustrating than being told by an ‘expert’ in the field: “All that is wrong, we know how it should be done, but we’re not going to tell you. Here, take a financial health check.”.

My friend took their health check and they still won’t tell him how the property investor’s trust works, so if you’re reaching for your cheque book you should probably change your mind now

Cheers,
Carl

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

November 15, 2005 - 7:25 am

Even better!

What’s your take on capitalising interest payments using a line of credit for an investment property? Lets say for argument’s sake that the person in question had no non deductable debt and that the rent from the property just hit the LOC as it arrived..

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

October 27, 2005 - 1:25 am

Thanks Terryw. I think the next step is to speak to the bank then.

Cheers,

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

October 22, 2005 - 2:30 am

Ah ok… It’s all starting to make a little more sense now.

Ok, so lets imagine that my GF is not going to be in a position to buy any property in the next while, and the purpose of the loan/investment is just to save up for a deposit for a property, then her servicability won’t become an issue until she wants to use her capital, redeem her funds, and thus pay out her loan. In this situation it doesn’t matter so much if her serviceability is hurt in the short term. When her funds are redeemed her mum can then refinance the loan in her name only (with my GF being taken off the title if necessary) which would free up my GF’s servicability for her own property.

My question then is, if they split the loan, add a 20k part, IO that my GF can use for her investing, because they are both on the loan, can my GF claim the interest payments on the 20k split as a deduction for herself (provided she can prove the funds were used to generate taxable income for herself only), or are they forced to claim the deductions relative to their title ratios?

Thanks a lot for helping out guys, I really do appreciate you taking the time.

Cheers,
Carl

[carl_vicParticipant@carl_vicJoin Date: 2005Post Count: 73]

October 21, 2005 - 7:42 am

eh.. bump .. anyone got an answer?