[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

August 6, 2004 - 4:01 am

Originally posted by gloryboy:

Everything points towards starting a company and establishing trusts under it.

Depends on exactly what you mean by this.

If you mean buying the properties in the trust(s) and using the company as the trustee(s), then I gather that’s a common scenario.

However, buying appreciating assets in a company is generally not a good idea as you lose the 50% CGT discount.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

August 2, 2004 - 7:35 am

And for NZ there’s http://www.propertytalk.co.nz

I visit that and Somersoft regularly. I think Somersoft is very good too, but it doesn’t have the +CF focus of this forum.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

August 2, 2004 - 7:29 am

Yack,

Until you get around to buying Dale’s book…

1. Can I still claim all the interest expenses in my tax return?

The idea is you borrow in your own name and buy income units from your hybrid trust. Since you’re borrowing for income-producing purposes (you get the net income from the rent), the interest is deductible, even if its more than the rental income.

2. How does this effect my capacity to borrow with the Bank?

That I don’t really know. I recall from Dale’s book that some lenders may not be too comfortable with the concept, due to lack of familiarity, but you’d really need to ask a good mortgage broker.

Do I still sign personal quarantees – so it really has no effect.

I gather the trustee allows the property to be used as security, so I suppose if the lender would accept it as security when bought in your own name, then they would probably do likewise when bought in a trust.

However, a mortgage broker would be much better placed to answer this. I’m only going by what I’ve read.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

August 1, 2004 - 10:32 pm

Originally posted by yack:

I have all properties in my name for negative gearing purposes.

You can also do that with a hybrid discretionary trust.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

August 1, 2004 - 10:26 pm

Misty,

My understanding is that it’s what the money is borrowed for that’s important, not where it came from.

So as long as it’s used for income-producing purposes, then I believe it should be deductible.

But as always, check with a good accountant.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

August 1, 2004 - 10:17 pm

Originally posted by robo:

NAB told me for a IO loan as follows, loan amount x days in month x interest rate divide by 36500 = monthly payment.

Well they know how to make something more difficult than it is []. Why didn’t they just say loan x interest rate divided by 1200? And what figure would they use for the number of days in a month?

IO is fairly straight forward. I’ve been trying to figure out P&I.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

August 1, 2004 - 9:24 pm

Thanks Steven. I’ll take a look at it.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 31, 2004 - 11:32 pm

Steven,

Do you know what the actual formula is for calculating repayments on P&I loans?

All these programs and Websites that provide calculators are fine, but I’d like to know the actual formula used. I’ve tried to get this off my bank in the past and the loan people can never tell me (possibly because they don’t know themselves).

I once got some figures off NAB for a loan then plugged the same numbers into the MS Money program and got different answers (close, but not exactly the same).

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 31, 2004 - 3:24 am

Originally posted by Julia:

if the interest on the property exceeds the net of rent and other costs the difference is deductible in Aust. This has only been in for a few years before then it was quarantined.

That’s good to hear [].

Do you know if it matters whether the loan is from an Australian lender or a NZ lender?

And I read something about the ATO taking witholding tax from interest payments to NZ lenders. Have you heard of that?

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 31, 2004 - 3:15 am

Originally posted by Aceyducey:

OK – how do you then get the money OUT of the company….pay dividends…taxed! pay salaries…taxed!

Why get double taxed?

The way I see it…

You’re not being double taxed with dividends, as the company tax paid gives a franking credit. You’re only paying the extra tax that brings the company rate up to your personal rate – which is the same rate you’d pay on an income distribution from a trust. You’re only losing on the deal, relative to a trust, if your income is low enough that you can’t get all the benefit of the franking credits.

What you are losing though is the flexibility to distribute to a low income earner, unless they’re a major shareholder.

And salaries aren’t taxed in the company if they come from income in the same year (other than the standard PAYE tax). They’re no good for reducing retained profits though.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 30, 2004 - 9:56 am

Originally posted by lifeX:

What if you had no other beneficiaries left under a 30% tax rate.

Remember though that it’s not the marginal tax rate that counts but the average tax rate. A person can earn around $70K a year before their tax payable is higher than a company’s.

If all the beneficiaries are earning much more than this though, then I think distributing to a company might be okay provided it’s only income or capital gain on assets held for less than 12 months. For capital gain on assets held for more than 12 months the top tax rate is only 24.25%, which is less than the company rate.

One problem with building up cash in a company is that to get it out you have to declare dividends, and dividends have to go to shareholders. If the shareholders are still on high incomes, then they’ll have to pay the extra 18.5% tax anyway. And while it’s possible to have a low income earner as a shareholder of a different class of share, where dividends don’t have to be distributed evenly between classes, there are anti-avoidance provisions to do with dividend streaming to be wary of. Basically companies aren’t very flexible when it comes to distibuting retained profits.

Note though that I’m not an accountant and this is just my understanding and personal experience.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 30, 2004 - 9:32 am

Originally posted by westan:

but add rising sea levels, now we are coastal.

And one billion dollars of Coromandel property is now under water [biggrin].

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 30, 2004 - 9:07 am

Waz11,

This was discussed here somewhere not so long ago.

From memory, the main points were that the house owned by the trust would not be capital gains tax exempt and you cannot negatively gear the house you’re living in (ie. by using a unit or hybrid trust). Otherwise I don’t think there’s much problem with it.

But check with an accountant or lawyer.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 26, 2004 - 11:21 pm

Originally posted by SuccessPlanner:

Is it possible to buy in the name of a Trust and still not pay CGT??

By my understanding, any capital gain will always be assessed for CGT, but how much you pay depends on who theoretically has to pay it.

With a trust you have the flexibility of distributing the gain to the beneficiary who can pay the minimum amount of tax on it. That would very rarely be no tax though, unless perhaps the amount was very small.

As well as Trust Magic, Nick Renton’s book “Family Trusts” is also very good. You’ll find it in most bookshops for around $20.

GP

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July 23, 2004 - 3:44 am

YC,

why do you think the property can be sooo cheap in towns with relatively good rental?

I’d say that in many cases the return is necessary to compensate for a lack of capital gain potential and the added risk of long periods of vacancy.

I had an email yesterday from an REA in NZ offering a place for $55K currently rented at $148pw. That’s about a 14% gross yield.

However, according to the 2001 census stats, the population was about 1600, down about 2.5% from the previous census, the majority of income earners were under $20K pa (half of those under $10K), and the unemployment rate was around 18%.

I’m not sure that that gives a particularly good tenant pool – at least not of tenants who would be likely to always pay their rent on time.

GP

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July 22, 2004 - 9:20 pm

Originally posted by kp:

where is all this capital growth going to come from in the immediate future ??

If it’s a long term investment, does the immediate future really matter?

As long as it has potential for the longer term (although of course this will depend on Phil’s goals).

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 22, 2004 - 9:13 pm

Originally posted by kp:

the Police are no help in these situations..100% failure rate in my experience.

And mine.

To rub salt into the wound, after the last time my place got broken into (before I had an alarm system and window bars), the police came and dusted everywhere for fingerprints – which means I had an awful mess of black powder to clean up all around the place! It’s not always easy cleaning that stuff off.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 22, 2004 - 2:14 pm

Wow, I worked through that one yonks ago as a kid. Except then it was called “Who owns the zebra” and the cigarettes were Parliaments, Chesterfields, etc.

Ah… here’s the one I remember:

http://www.psc.edu/~burkardt/puzzles/zebra_puzzle.html

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 22, 2004 - 1:57 pm

Scullyman,

I’m not a legal or financial person either, but I would imagine that would be worse. The promissory note might be considered as income to the vendor (assuming they declared it), so they’d miss out on the 50% CGT discount they might otherwise be entitled to.

Also, the fact that you’re trying to help the vendor save on CGT indicates that the transaction is not arms-length. You may end up with the ATO valuing the house at market value for CGT purposes AND hitting the vendor for income tax on the promissory note.

But as I say, I’m not an accountant so this is all just conjecture.

GP

[GreatPigMember@greatpigJoin Date: 2004Post Count: 284]

July 21, 2004 - 10:36 am

Lisa,

I don’t know anything about them, but if you use the forum search feature and search for “investors club”, you’ll bring up a number of older threads about them.

Cheers,
GP