Maybe best to sell one house per financial year to avoid too big a gain.

You might also want to look at selling half. If they are in your wife's name you could borrow to buy half of the property. Put the cash off your PPOR mortgage.

Or sell to a trust.

But it all depends on your view of whether they are long term growth properties. If not the they may not be worth keeping and may be best to get rid of completely.

Hi Jarrod

I think the ATO is only concerned with uncommercial uses of hybrid trusts. Especially uses which are schemes which try to enable a high income earner to claim the interest and then the trust distribute the income to a lower income earner.

hi Tim

I am not an accountant, just a lawyer (sydney) with an interest in trusts, so I may be wrong, especially on the tax side of things.

A trust could acquire capital would be gifting to it, and if there is capital growth of the trust assets.

But I see what you mean.
eg. $500,000 property. with a $500,000 loan. Property increases to $1,000,000 and the trust sells it, paying back $500,000 loan. It is left with a $500,000 capital gain which would be distributed.

With your offset, the money in that is cash. You can do with it what you please. Go and bet it all on a camel race if you want and the extra interest incurred on your loan should be deductible as it is not borrowings. It is just cash temporarily parked in the offset.

There is no requirement that you must lend money to someone at market rates unless you want to claim deductions. So in this case you could lend it to your trust interest free. This would assist the trust make more profit and thereby mean your tax position is enhanced.

Good thinking

minors don't have legal capacity. If a minor was appointed appointor then their guardian could probably act in their place if this is drafted into the deed. interesting question.

That's an idea. Sell the PPOR CGT free and move into one of the investments.

Also, considering the other properties were inherited there are CGT concessions which should be looked into.

Mick,

I think it may be an idea to sell a property. The tax savings overall may be worth the extra costs incurred with the CGT and stamp duty on repurchasing a new investment property. There are also significant asset protection advantages available if you can set it up correctly.

I am a solicitor based in Sydney CBD. If you buy me lunch one day I will go through it all with you.

Here is a link to an article re this
http://www.smh.com.au/business/negative-gearing-unhealthy-says-anz-boss-20110602-1fiz8.html

1. Yes you can lend to your trust. The trust can pay you back out of the profit, but this would not reduce the income of the trust, just like you paying $1000 off your ANZ loan would not reduce your income by $1000.

There is no need to charge your trust interest, but if you are borrowing from a lender and then lending to your trust your trust should probably pay you the same interest as you are being charged so it cancels out. Otherwise you would be left with paying interest to your bank and be unable to claim it.

2. Yes loan could be in anyone’s name if the bank will accept it. But the individual couldn’t claim a deduction for ‘investing’ into a discretionary trust.

If the trust was a unit trust the individual could borrow to buy the units. Because the units give a fixed entitlement to income the unit holder could claim the interest against their personal tax returns. This is not the case with a discretionary trust as there is no fixed entitlement. So if you borrow and invest in the trust there is no guarantee you will ever get a return because the trustee has discretion on who to distribute to.

Thanks Michael

hi EW

Using a trust would definitely be slower and cost you more in the initial stages. Unless the trust had other income and it could therefore negative gear. If no other income then it would just have losses which would be carried forward, but would not result in any immediate tax savings. $500 pw is a large short fall.

Using a trust in NSW means the trust would pay land tax on land values greater than $1, unless the trust is a fixed trust. You generally wouldn't want a fixed trust as there is no asset protection and no flexibility.  ie there is no threshold like an individual. This means more land tax initially, but an individual will reach the threshold soon and then start paying the same land tax amount on anything over that. Multiple trusts won't really help. Multiple states might, but most states hit trusts harder on land tax now.

Setting up a trust later is too late. Transferring property means CGT and Stamp duty and there will be little to no asset protection. You could buy subsequent properties in the trust, but the first ones will still lack flexibility and asset protection.

re getting sued. I am a lawyer and see it all the time. You can get sued for something very innocent. eg one man bought a car, which was a dud, so he sued the seller. He fought hard and lost. He now has to pay the judgment, his costs and the other party's costs and is looking at $500,000.

You probably won't get sued in relation to your properties, but things happen. eg there is a post here somewhere about a investor who had his handyman replace some glass next to the front door. The tenant put his hand through it and was badly cut. It turned out that the glass was not up to the safety standard and the tenant was awarded about $800,000 (agent was also liable as he arranged the handyman from memory.) If this was held in a trust the trust would be liable for the money so properties in this trust could be at risk, but assets in other trusts could be safe).

Anyway, using a trust would cost you more and slow you down initially. But you are creating a time bomb. What will happen in 20 years, You will be on a fortune and will be paying a heap of tax while your wife has little income and there will be little you can do to split the income. You will also be a very attractive target if someone considers suing you (one of the first things people should do when considering to sue is to see if any properties are owned, if none then it is not worth pursing usually as there will be nothing to pay a judgment with).