Forum Replies Created
If you sell you will likely pay CGT and will loose future capital growth. You would also be up for agents fees and if you later buy something else more stamp duty.
Do you guestimate they will be growing more than they are costing you? if so it might be worth holding. ALso have to factor in the opportunity cost of having the money tied it, the extra non-deductible interest you are incurring as well as the negative cash flow
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
If the house is being used as security it would require a joint loan with both of you as borrowers, or 2 loans with each guaranteeing the other’s loan. Your income isn’t mentioned, but together you might be able to qualify.
Best to seek legal advice before purchase and consider entering into a deed of partition so the titles can be transferred without triggering CGT or stamp duty once subdivision happens, but at that point you would need to qualify for the loan on your own.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
There should be no need for a private ruling for a question like this. basic tax advice should be enough.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
1 No land tax threshold
2 No option to borrow more than 80%
3 Initial and ongoing fees of managment
4 Extra tax returns and other headaches
5 No option to negatively gear, which is a huge deal breaker at current interest rates
1, Trust in NSW, but not true for most other states
2. Not true
3. Yes – a little ASIC fee plus tax returns
4 yes
5. trusts can negative gear like any taxpayer.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
As you will read in my linked screenshot, investing through a trust does not seperate you from debt in your personal name or other trusts that you are associated with. This is straight from the mouth of CBA and multiple accountants and brokers that I have discussed this with. If anyone’s experience differs, please let me know as I’m very curious to get to the bottom of this as I’ve heard different truths from many different people.
I am a trust lawyer and mortgage broker of 24 years and you have misunderstood a few things here.
A trust cannot borrow as its not a legal entity, just a relationship. It is the trustee that borrows. If hte trustee is a company the loan will be taken out by the company with the director giving a personal guarantee. that means it is not a debt of the individuals, it is a debt of the company in its capacity as trustee and personally.If a 2nd company then borrows, in its own right or as trustee, the debts of the first company are not debts on the new company so they wouldn’t be taken into account. But the company can only borrow with the benefit of the personal guarantee which will mean that the loan guarantees for Company1 is taken into account, but there are several lenders out there that will disregard loans guaranteed, for the purposes of serviceability, if certain conditions are met.
CBA is one of these lenders too.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Can I elect to treat PPOR1 as my PPOR for the entire period of Sept 2018 to May 2023, and pay no CGT (and claim a capital loss for PPOR2)?
Not enough info to know for sure, but it could potentially be the case that PPOR 1 could be claimed as the main residence for the whole period because of s118-145 ITAA97
6 year rule can apply even if you do buy another main residence- but you can’t claim the exemption on both for the overlapping period
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
If the trust’s income is going to be less than the tax free threshold there may be no tax benefit for the trust to claim depreciation. but it would still be added back to the cost base on sale, but there is an exception to this if the taxpayer doesnt know what the depreciation values are so the trust shouldn’t get a depreciation schedule if it hasn’t already.
see
Practice Statement Law Administration
(General Administration)
PS LA 2006/1 (GA)
Calculating cost base of CGT asset where there is insufficient information to determine any Division 43 capital works deductionhttps://www.ato.gov.au/law/view/document?locid=%27PSR/GA20061/NAT/ATO%27
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
1. If I pay off (put money in redraw) properties in trusts, does that mean I get taxed more for the rental income vs properties under my individual name?
2. Can I distribute any rental income to my sons? (they are only 1.5 and 3 yrs old though). I have asked my accountant the same ques but waiting to get a response. And I am opent for any feedback / suggestions. Thank you!
You shouldn’t be paying off trust properties as that will create legal issues. You could gift the trust (the trustee) money or lend it money which it can store in its offset account or pay off the loan. Either will decrease the expenses and mean the trust will have a larger taxable income so it could result in more tax.
2. The trustee potentially could distribute income to the kids, but they will be taxed at 66% on amounts over $416 per year, unless under a disability
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You need to apportion the cost base expenses between the 2 blocks and the best way to do that is to instruct a valuer to do it. The other block has a house on it so it cant be worked out on an area basis. Your valuation would be done as of the date of purchase. Main residence exemption can’t be used on vacant land and can only apply to 2 acres anyway
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
the contract ended at settlement so they are unlikely to be under any obligation to asset.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
The trustee would need an express power in the trust deed to rent to a beneficiary.
But if the trustee as the same company you are referred to? There is a common law rule against contracting with yourself, even in different capacities. but the ATO seems to allow it for tax purposes. Best to seek legal advice
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Why an accountant? Trusts are legal relationships so you are best off with a solicitor to explain, but if you are after advice on borrowing capacity they will need a credit licence as well so you would need a broker for this.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
An asset held by a trustee of a discretionary trust is not an asset that you own, so it is the same as paying off someone else’s loan. It has various consequences so best to seek legal advice. One strategy might be to lend your cash interest free to the trustee instead and let them pay off the loan with the loan from you. Another may be to gift to the trustee.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I just wanted to confirm, as the trust is owned by the company, when I apply for a loan, do I take the loan out in the name of the company that holds the trust or the trust itself?
A company cannot own a trust. A company might be acting as trustee for a discretionary trust. The company would own the property, the company would be the borrower with the director of the borrower giving a personal guarantee. The lender would want the company to enter into the contract as trustee of the trust and have a right of indemnity out of the trust assets. This will mean the company’s personal assets, the trust assets and the assets of the guarantor are exposed if things go wrong with the loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I am receiving conflicting views from my lawyers and accountants and it is making it very difficult for me to understand things.
It doesn’t matter what an accountant says as this would require legal advice.
One of the things I have been told by my lawyer is that holding property in a trust won’t protect your assets from creditors if I ‘benefit from’ the property.
This might be taken out of context or is a bit vague. First what are you trying to protection the property from? Creditors on bankruptcy? A trustee of a discretionary trust can still hold a property and let a beneficiary use it, perhaps rent free, if they have the power to do this. the property could still be safe from creditors on bankruptcy of that individual beneficiary. but there are still many potential ways the property and the trust could be attacked. So it largely depends on how the acquisition and funding of that property was structured within the trust.
Therefore, I have been told that it does not matter what legal entity the property is owned by, as if creditors are chasing any money, my assets would be exposed, regardless of what structures they are in.
You say ‘my assets’ but seem to be talking about a different entity holding the assets. If they are yours then they are available to creditors. If they are held and owned by a company, for example, then at first brush they are not your assets – but who ownes the company, how did the company acquire the property, how did it get the deposit. All this determines the strength of the protection
My accountant gave the opposite advice, stating that the assets would be protected.
They would not be qualified or knowledgeable to give this advice – or covered by insurance.
Can anyone confirm this or provide an alternative view as it is becoming increasingly frustrating when the advice from accountants and lawyers do not match up?
I am a tax advisor and a solicitor (and lawyer) and your understanding seems to be defective so you might be asking the wrong questions and getting answers to these instead of learning how a trust or a company could help reduce the likelyhood of assets falling into the hands of creditors.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
There are banks other than the big 4 – actually one is a big 4 – that will disregard personal guarantees if the borrower is self funded. It is just a contingent liability for the guarantor so they are only liable if the borrower defaults.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
There are none in Australia as far as I know
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
If you are investing in personal names you would be paying the same interest rate, generally, as a corporate trustee would be.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
speak to a town planner to see if it is possible to do first.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You will need to go and get legal advice about the right trust and how to set it up. That will cost several thousand dollars.
as a lawyer specialising on trusts I wish I could charge this much for advice on trusts.
This strategy works with companies – the company could be acting as a trustee or be acting in its personal capacity. i.e. a trust is optional – and in fact should be avoided in many cases due to the land tax laws.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
