Forum Replies Created
gmh454
Thanks for your input into this. As you would know the onus of proof is on the taxpayer to defend the structure & strategies they use – even if this advice comes from a professional.
I have “raved” on about this issue because it seems from reading threads on the forum that people are setting up trusts at minimal costs & it worries me they are not getting adequate advice. I like trusts & use trusts but they are not for everyone. One other thing – over the last six mths I have received more audit/review requests from the ATO than ever before & mostly in relation to neg gearing & Interest deductions. They have certainly deployed more audit resources in this area & the possibility of being reviewed is probably no longer remote.
JBMel
You are not comparing apples with apples.The loss from negative gearing for individuals is able to be offset against other income – no problem. For trusts, including hybrid trusts, losses cannot be dsitributed to unit holders/beneficiaries & are c/fwd in the trust. The unit holders may be able to claim an interest deduction for their borrowings to acquire units & this is where the strategy becomes high risk. In return for your investment in the units you would expect a commercial investment return at least equal to the cost of your borrowing.
I’m starting to rave – just be aware that the hybrid trust strategy has risks attached for negative gearing outcomes that some wouldn’t want to take. As you acknowledge more knowledge makes for better investment decisions.
Merry Xmas
JBWe have 42 – combination of buy/hold & wraps – current target 2 buys/mth.
Try Depreciator – you can look up their details at http://www.count.com.au & go to 3rd party services. Depreciator have a fixed fee & actually inspect the property in preparing the report which is vital. Probably not the cheapest but certainly reliable & trustworthy.
Remember, the ATO do not have to accept a quantity surveyors opinions on depreciable items and rates – the onus & responsibility is always on the taxpayer and I have seen plenty of inaccurate QS reports – especially when they prepare them off a floor plan & don’t inspect the property.
JBFor Mel et al
Yes I know what a Hybrid Trust and/or unit trust is and yes you can “construct” these so that negative gearing is achieved for a trust asset individually.
However, the ATO have a provision called Part IVA that applies to schemes entered into with the sole or dominant purpose of obtaining a tax benefit.
My educated view is that using hybrid trusts to achieve negative gearing for the unit holders where the underlying investment (say property) is held by the trust is high risk and will be subject to close scrutiny by the ATO. If you want your financial empire to be based on chance as Steve McNight commonly reminds us go right ahead. But beware of the risks you are taking.
Corporate trustees – necessary if you are looking for asset protection which in my view is the No 1 priority (especially for business owners). I apologise in making a blanket statement here – if you are an employee and not likely to be sued individual trustees are fine as your No 1 aim for using the trust would be on income splitting & tax minimisation not asset protection.
JBRodders
Perhaps your opening statement should have read:
“I am an accountant, and you would be stunned at how litte I know”
Nobody likes having their profession criticised.
I hope you find a successful career change and Merry Xmas !!!!
JBRodders
Being a business services/tax specialist I take professional offence at your comments. You cannot generalise the accounting industry this way & there are many good practices & partners within them (a lot of these are my friends) who are more competent at advising what to do with your wealth than anyone I know. Of course there are not so good advisors out there but generally accountants in public practice have sound financial sense and judgement. Can you tell me how many practices you have worked for & at what level for you to make such a rash statement about our industry.
JBSome people are very defensive in this forum aren’t they. That’s OK – stimulates the thinking !!!
JBMel
No lender can provide this sort of surety. I have researched this area a lot and have advice from the NTAA, the ATO & Deloittes advising that you would be breaching the borrowing provisions in SIS if the asset was charged in any way. I intend contacting Barbara Smith to clarify her position in this regard. Will let the forum know if my view changes. Remember, ATO are self-assessment so you can do it, but remember they will take cautious approach in an audit & disallow the strategy which puts the onus on the trustees to prove them wrong. Are you willing to take on this sort of uncertainty with your financial future ???
JBI would consider leaving the funds in the company & buying the property in the company name (provided the company doesn’t operate a business). Company has no 50% CGT discount, however, if you are personally 48.5% the comparative rate of tax on CG is 24.25% vs 30% for the company which isn’t enough difference to worry about – particularly when you factor in the cost of distributing the $50,000 out as a dividend which may or may not be franked. See your advisor to clarify but on the face of it use your company.
JBIf you are going to set up a trust use a corporate trustee & get someone qualified to set it up for you. Did you know the most powerful individual/s in a trust are the principal/appointor, ie, those that have the power to remove/replace the trustee. Do you know the matrimonial implications of having the wrong person appointed to this role ??? Did you know trusts attract land tax on property without a threshold ??? Did you know that if your investment properties are negatively geared for tax, eg, after claiming depreciation, the losses are trapped in the trust and you cannot use to offset against other income ??? Do you know what a family trust election is & when you should make one ???
I would suggest the response to these questions are all NO – if so get some advice & set it up properly. If you are worried about spending $3000 on advice you are not serious about having the right structure.
JBGo to the ATO website and you can down load it on line – much quicker & easier !!!!
JBBeware of the private ruling if you are going to lodge it yourself. Once issued by the ATO it is binding on you even if you don’t agree with their logic. You also bring attention to yourself and my recommendation would be to pay for the advice. Personally I would suggest you leave your SMSF out of your property portfolio & use it to diversify into direct shares. Shares are great investments in a 15% tax environment with imp credits at 30%.
JBTerry
Chris Batten is a lawyer and the strategy he suggests requires the property to be mortgage free before the super fund acquires units. So you would have other security to support the finance.
I’m not sure what Barbara Smith was suggesting,however, the super fund cannot have an interest in a property that has any sort of mortgage attached (even if the interest in held via a unit trust). Unfortunately there is currently no legal way for super funds to do this & the ATO are dedicating huge resources to the audit of these funds this year and the SMSF penalties are a lot more severe than for general tax law. Again, you need specialist advice for this sort of transaction.
JBSounds brilliant but unfortunately this will not work. The two unit trusts are related parties and the investment in their units is limited to 5% of the super funds total assets. You would be breaching the in house assets test and the penalties are quite severe.
You need to discuss your self managed super fund strategies with a good accountant as few people would understand these complex rules without advice.
JBTerry
The most sound basis for determining a businesses value is the return on investment calculation. You take the net profit as disclosed and add back any expenses that would not be relevant to a purchaser, eg, owners wages, interest paid, owners super, owners motor vehicle, etc.
Then you determine a reasonable remuneration for the owners labour and deduct it from the adjusted profit. The amount left over is your return on investment from the business. We believe the minimum this should be is 20% – 30% depending on the type of business eg, $50,000 return = $250,000 business valuation.
One of the biggest problems in valuing these businesses is knowing how much cash income is NOT declared and basically you ignore it.
Regards
JBI’m not sure whether this is appropriate, however, we are accountants in Inverell, NSW. We are heavily into property investing and advising, understand and use wraps, lease options, etc. My partner is a financial planner in the business, I am a tax accountant & we think we form a formidable team.
If anyone would like to use our services we have a website – http://www.mtpcount.com.au or you can email me [email protected]. One thing we can guarantee is that we know what we are doing re: property.Thanks
JB
