Forum Replies Created
Hi Benny
You may be over estimating the price of this place.
I’ve just now been offered 1.5m for this place from some one who wants fast settlement. Thats actually more than I was going to ask, so I guess I’ll take it.
Gateway
colinnewland wrote:Speakto a finance broker who specialises in 'commercial' property development. There are waysto get around the lack of future income (other than the property income itself).Depending on the equity held in property, she should qualify for a development loan as they banks will do a valuation on the end value.Another way to deal with it is to go into partnership with a reputable builder where she provides the land and they provide the materials and labour and finance.
She talks a % of the profit by way of retaining several of the finished developments (as will the builder, who may or may not sell them to get to his profit).
This is a good method as it take sthe stress out of getting a LARGE loan with the builder completing ALL the paperwork AND you get to retain ownership of the land until the final sale to an end buyer.
You will provide him with several options (one covering each unit to be passed on) to buy (at a pre determined price) and a licence to enter the property for the purpose of completing the building development. As you are not (yet) selling the units, the builder will not be required to pay stamp duty. Stamp duty is paid by the final buyer who takes the option to purchase from th builder. This prevents double payment of stamp duty and retains the builders cashflow.You will need sound legal and financial advice to use this method buy well worth it in the end.
Hi Colin
Do you know a "reputable" biulder who would consider a joint development?
Regards
PaulHi TerryW
I would certainly appreciate that chat.
This has been a continual learning path
My curretn thoughts are now (my thoughts seem to change by the day now that I have discover these forums).
after participating in this thread and reading alot of others, I am leaning towards a Testimentary Trust as there will be no need to spend thousands on transferring the titles over to a UT/ DT and assett protection for a 65 year old lady who wants to retire is probably ok with the insurance that you pay for every year with each house.
A Testimentary Trust < I am hoping> will circumvent any challenges to the will. This seems to be the only possible problem I can see on the horizon.TerryW – sent you a PM
Paul
Hi Terry W
Just contacted my accountant and we will meet later this month.
The accountant knows about trusts and companys and suggested a modification to your suggestion (it was just a quick phone call so maybe I got it wrong).
The suggestion was ,,a UT with a company trustee and a DT with a company trustee. with the DT owning the UT (basically this was your advice)………I thought two companys were overkill with the DT but I will take advice. Mum will own the Units in the UT and be the Appointer for UT and DT. Also Share holder and Director.The accountant also said that they only cost $218 per year to run.
I guess as they are just "figure head" companies for the trust there won't be any financials , GST, ABN necessary and it is just a matter of sending in the returns to the tax office and ASIC as per another your info to another poster in this section.I will also contact my Solicitor on monday.
Will keep you up to date on how this adventure progresses.
I was starting to think this was all to much hassle until I look at mum's ex husband possibly contesting the will when the time comes. Will my brother and I be able to operate her companies and trusts when she passes?
Regards
PaulThanks TerryW
So, my summary understanding of this thread is that.
Trusts are good……but having a Pty Ltd Co as a trustee does not offer any protection for an average person that that person being the trustee; as a tenant can still sue the PTY LTD Co as easily a the average working person.
The trust itself offers protection only if the average working person is sued by a party in daily life not connected to the rental properties. The trust property will be safe.
A Unit Trust is good to hold the properties and a Discretionary Trust is good to disperse the funds.
A big CON with Pty Ltd Co's and trusts is the running cost so keep these to a minimum. A simple structure is good.
The ideal is perhaps a Trust that incorporates the Unit Trust and the Discretionary Trust…….and I Think this is called a Hybrid Trust.
SO my final question is
Is there any benefit in setting up something other than a Hybrid Trust without a company or involved? Running costs should be lower and easier to handle and the 19 rental properties eventually being built would be just as protected as through another type of setup but with less hassle.
TerryW should I go to the Strategicwealth people at Hurstville and ask them about this, my current accountant is ok (I think) but it doesn't hurt to ask for another opinion. I was under the impression that a lawyer would be needed for advice and setting up the trust.
It all seems to be coming down to a refined answer…..thankyou
Paul
Hi TerryW
I am in the St George area.
Paul
ok TerryW
Time to see someone about this.
Can you make a recommendation?
Paul
Terryw wrote:Hi PaulYes, the properties would need to be transferred to the trustee of the trust. Stamp duty and CGT would be payable at market rates.
If the trust needs to get a loan to buy the properties then the lenders will require personal guarantees from all trustees and/or directors of the trustee company (and maybe shareholders if these are different). The incomes and liabilities of the individual and the rent from the properties is taken into account.
Its a big move to do this so you need proper and careful advice.
The trust is not a legal entity, but the trustee that is the legal owner of property. So the trustee enters into agreements with tenants and other contracts.
If the tenant sues then the tenant will be suing the legal owner which will be the trustee in its capacity as trustee. The trust deeds will have clauses indemnifiying the trustee out of the assets of the trust. This means the trustee will be liable to pay, but will be reimbursed out of the trust's assets. If the trust doesn't have enough assets then the trustee's personal assets can be at risk. This is why it is a good idea to use a Pty Ltd company as trustee as a company is a separate legal person and generally the directors are not liable unless they do something illegal. Shareholders can't be held liable for company debts. If the trustee is not indemnified out of the trust assets then the directors of the trustee company can be held to be personally liable in some instances under the Corporations Act, s197 from memory.
A trust will need to do a separate tax return and if you have a company then ASIC annual returns and fees too.
So, if a company as trustee for a unit trust owns the property then the company will be the one contracting. It won't have any income and so must lodge a nil tax return and ASIC statements every year. The unit trust is the owner for tax purposes and this trust receives the income and claims the expenses. The units of the unit trust can be owned by your discretionary trust and any income from the unit trust can be distributed to the discretionary trust and from there to the lowest income earners in the family group.
Hi TerryW
So if she goes with this structure and she is sued……the company as trustee goes bankrupt and we form a new company to act as trustee…..so none of the assets are at risk….is that correct?
From what I can see if we go this way she would have to set up a Pty Ltd Company/Unit Trust structure (to protect the assets) and a Discretionary Trust to Disribute the rents (with the possibility of there being another company so the rents would only be taxed at 30%).
Is this what you are getting at? If so, how much administration goes into this? Do you know anyone who runs a setup like this for rental properties…..and how much they have to pay their accountant to run 2 trusts and 2 companies.
I certainly appreciate your advice, if I am understanding it the wrong way please correct me
Paul
Terryw wrote:Gateway wrote:TerryW
Thanks for taking the time to answer this post. If it ok can I ask you a couple of questions about your suggested framework.1. How will the discretionary trust minimise tax for my mother? I don't really understand this.
2. She will have to pay to tranfer the property, so best to do this before development starts,,,,but can you tell me how this will ""(initially at least)"" affect asset protection .
3. The SMSF this a better way to go for her?
4. She has 400 plus in cash so won't have to borrow a great deal for the initial 3 vill/townhouse development.Terry I know someone who explained to me a little of having a company and the assets owned by a trust so that the assets are protected and 'many' more deductions become available (whatever they are I don't know).
But I do not understand how any of this will balance out ie LAND TAX, does a trust////company get the land tax threshold as well?
Paul
1. Discretionary trusts enable the trustee to distribute the income of the trust to a wide range of beneficiaries. This is usually done with tax in mind so that someome with a low income will get more than someone with a higher income. If everyone is on a highish income then it is possible to distribute to a company and cap the rate at 30%. The best thing is that the trust is discretionary so the trustee can vary the amounts each year.
2. With discretionary trusts no one beneficiary has any fixed interest. So if a beneficiairy were to go bankrupt the trustee in bankruptcy could step into their shoes, but they would have no rights over the trust assets and only the right to be considered for a distribution from the trust. The trustee would not normally distribute to the bankruptcy trustee but to other family members in stead.
But, if someone transfers property to a trust (or anyone actually) then these transactions can be undone under many circumstances. If the reason for the transfer was to defeat creditors (ie asset protection!) then the transfer can be unwound indefinitely. If it was done with a sale for market value then the period may be 5 years.
3. SMSF have considerable advantages. Great asset protection and when in the pension phase tax free income and CGs. Developing may be difficult thought.
In NSW there is not land tax free threshold for companies or trusts so 1.6% on $1 and up in land value. But with that many properties she would probably have used up her land tax free threshold anyway.
He TerryW
From what I see she would have to "sell" the property to the trust…….how is this done as it will be a new trust with no assets?
Also…..when renting to tenants. Will mum be able to sign the lease and rent to them in her name or will she have to use the trust? If she uses the trust and the tenant sues….will the tenant be sueing the trust ,,, if what are the liabilities?
Maintenance paperwork each year for a trust (I just looked at the tax office website) appears to be as if filing a return for an individual…….so is it the case that the Unit trust (the one the property name is in) will be out taxes,rates and insurance and the Discretionary trust will be paid from the income of the unity trust?
Thankyou TerryW
Paul
TerryW
Thanks for taking the time to answer this post. If it ok can I ask you a couple of questions about your suggested framework.1. How will the discretionary trust minimise tax for my mother? I don't really understand this.
2. She will have to pay to tranfer the property, so best to do this before development starts,,,,but can you tell me how this will ""(initially at least)"" affect asset protection .
3. The SMSF this a better way to go for her?
4. She has 400 plus in cash so won't have to borrow a great deal for the initial 3 vill/townhouse development.Terry I know someone who explained to me a little of having a company and the assets owned by a trust so that the assets are protected and 'many' more deductions become available (whatever they are I don't know).
But I do not understand how any of this will balance out ie LAND TAX, does a trust////company get the land tax threshold as well?ColinNewland
Thanks for taking the time with this. Please see further questions/comments in relation to your suggestions.1. She has another large(1acre) block siutable I guess for a joint development and this might be ok to share with a biukder later on when we know what we are doing…but for now we need to sort out the best ownership and asset holding structure with, taxation (personal and land tax and other tax if any) ,, asset protection and succession to sort out.
ScottNoMates….thanks for your comments
1. It's all Capital Gains Tax free as
purchased before 87..Paul
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