I think gifting periodical lump sums would be preferable. Otherwise it may look like you are using the trust account as your personal monies.

You dont really need anything to gift, but then it may be arguable that it was a loan. Maybe a deed of gift or at least bank transfers with the word 'gift' added.

It is probably best to see a lawyer about this – but you would also want some tax advice too.

You would need to check the trust deed about whether the trust can gift to beneficiaries. Also check with your accountant if this creates any tax issues.

Hi Tony

Technically neither is really needed. All a company needs to do in signing a document is to have the director sign (if single director company):
s127 Corporations Act
http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s127.html

Thanks for the update BB8

You will find it standard practice to have LMI apply over 80% LVR.

Having wages go into a trust account is a bit of a tricky issue. Unless these are gifts to the trust it will be mixing personal funds and trust funds. There would be various consequences flowing on from this – does the trustee have authority to gift these funds back to you? Will there be any tax consequences if it does so (Div 7A loans?)? Asset protection – if the trust goes down you lose your funds, but if you go down can you prove it was a gift and not a loan? Is mixing funds likely to make the trust a sham? You had better seek advice on this one.

Anthony,

Please read the legislation referred to above. Does it refer to intention? Does it refer to holding an asset for 12 months and 1 day before CGT applies?

You got it wrong I think. But that is ok, we are all here to learn. I also get it wrong sometimes (the last time was in 1987),

Good explanation TC, but your tax rates are too high.

The top rate this fin year is 45%, but it doesn't kick in unto you earn more than $180,000 pa. The rate below this is only 37% for incomes over $80,000.

Medicare is on top of these too.

I think there the ACN is generally inserted in the contracts. This is the company's ACN and is the same whether it is the company acting in its own right or acting as trustee. To avoid confusion some people but the trust's ABN down instead of the company ACN as this more clearly indicates the company is acting as trustee. But legally all you need is the trustee's name. No mention of the trust is needed at all.

Make sure you seek advice from your solicitor before signing the contracts.

It looks like we are dealing with the transfer of a business which was previously run by a company to the same company in its capacity as trustee.

A business would be a CGT asset and disposal of a CGT would trigger CGT – it would be CGT event A1 I presume. The 50% CGT discount may be available if the business was held by the company for more than 12 months. If not, then the full CG would be taxed. See s104-10 of the ITAA 1997 for the legislation concerning this.
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s104.10.html

Note s104-10(2) where disposal is defined as changing ownership from one entity to another.

A trust is considered an entity under the definition at s960-100:
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s960.100.html

Even though there may be no change in legal ownership (it is still the company owning the business), there is a change in beneficial ownership and this triggers the CGT event. See:

ATO ID 2010/72
Income Tax Capital gains tax: trustee ceasing to hold an asset on trust and commencing to hold it in its own capacity – CGT event A1
http://law.ato.gov.au/atolaw/view.htm?docid=%22AID%2FAID201072%2F00001%22
(which is the reverse, but the principles still would be the same).

Despite all this, no tax may be payable if the value of the business is still low.

Here is the main reason not to cross collateralise:

Imagine you have two properties. Each valued at $100,000 with a loan of $90,000 each. ie 90% LVR, with the two loans cross collateralised.

Now imagine you get into some financial trouble. You must sell one or both properties to reduce your monthly expenditures. But the values have dropped or you can only find a buyer willing to pay $95,000.

You sign contracts and sell the first property. Then you send off a discharge form to the bank. The bank arses you around and says they will only release the property if you can supply updated payslips and they will need a new valuation done on the remaining one.

2 days before settlement the bank says since the value of the remaining one is now $90,000 you will need to reduce the loan on this one to $81,000 to keep it at 90%.

So in addition to getting virtually no money from the first one you will need to come up with $8k to pay down the loan on the second one just so that you can sell the first one. Think of the tax consequences of being forced to do this. Think of the consequnces if you cannot afford to sell the first one with settlement being a few days away.

This is happening a lot these days. one of my friends was forced into bankruptcy because of cross collateralisation.

Other reasons:
– you will be limited to one bank as other banks will not take security, generally, of a mortgage over property that is already mortgaged to another bank.

– One lender will stop lending to you eventually. Each bank has different policies so you may be able to get a loan somewhere else – but this will be hard if you cannot move a property or two over.

– Asset protection – see above. Imagine if there were 2 banks involved.

– etc

Actually not all managed investment schemes need to be registered. If a private investor is just borrowing money, then it may not fall under a managed investment scheme either.

see the definition under s9 of the corporations act
http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s9.html#managed_investment_scheme

Richard, it would be the Corporations Act 2001 that regulates this area. The Managed Investments Act just inserted extra sections in the Corporations Act concerning managed investments.

Don't take tax advice from a bank employee. The bank is not licensed to provide this advice and it is incorrect anyway.

The extra $200,000 will be borrowed to buy a property which you will live in, therefore it is unlikely to be investment/business debt and therefore the interest on this portion won't be deductible. If you increase the investment loan to $400k without splitting it then you will be throwing money away as it will be difficult to apportion the interest and any deposits into this loan will be coming off your investment portion as well as your private portion 50/50.