But where would you deposit the money on the draw down of the loan before it is to be used?

I too would generally prefer an IO loan with an offset – but only if the money will be all used at settlement.

Thanks Banker, I missed that.

Sounds like your a good banker if you point that out..

If trust4sal has cash to contribute to the trust then this may be at risk for up to 5 years from the date of any future bankruptcy, but may still be a better option than loaning it to the trust. Often when bankrupcty happens little or no checks are done by the bankruptcy trustee – it is just too time consuming. And even if they do find something which may be able to be clawed back it is still not that easy to do.

Trust4sal you had better seek legal advice re all this before doing anything.

too late i beleive

Thanks number 8. The original poster did not indicate she/he did have extra cash, but if he did then:

The cash should be put into a 100% offset account and not into the LOC or a loan – otherwise there may be tax consequences if you want to take that cash out. Ideally the offset account should be attached to the non-deductible loan (if there is one) so as to save non-deductible interest.

Protection is a different matter.

If you lend money to someone it is still yours – but you may still be able to claim interest.
If you gift money it is no longer yours – but you can't claim any interest.

I think it is possible to claim the interest – but you will be receiving interest from the trust so these will cancel each other out. The net result is the trust gets the deduction.

There is no real way around this as the interest you pay on the LOC will only be deductible if you are using the money borrowed for investment/business purposes. If you are onlending without charging interest, or charging a lower interest rate than you are paying then it is not commerically viable and the ATO would disallow it.

Matt. Good points, but…

Transfers must be done at market value – or stamp duty and CGT assessed at market value. I think there are exemptions from Stamp duty in most states, but usually only for transfers of the main residence between spouses. Vic is one State which allows it done for investment properties.

Purchasing it off the wife is an option even if CGT is payable as the CGT may be minimal if she has no other income. But thinking long term if the husband has all the income and CGT – it may not be so good if the husband sells it later and he is on the topt tax rate. Its like a tax time bomb. May also not be good for asset protection.

I don't think you can claim anything as it is not your property.

Maybe you could pay your wife to do some sort of work for yourself so as it would be income to her and a deduction to you.

It depends on your situation and which state you will buy in.

Some reasons NOT to use a trust:
– In NSW you may end up paying more land tax with a trust.
– Losses of a trust are not able to be distributed so if your trust negative gears it may have a loss which you can't offset. If you purchased in your own names this may have saved you a bit of tax.
– Higher running costs. Tax return would be needed for the company as well as the trust. The accountant may charge a fee for the company to register at his address and there will be annual ASIC fees of $212 for the company.
– Complexity. You may find it harder to get your head around things when talking about tax and trusts
– Legal issues. There are complex legal issues surrounding the use of a trust. The Trustee has to act in the best interests of the beneficiaries of the trust. Trust assets are not your own.
– ASIC issues. You will need to abide by the Corporations Act and other regulations if you use a company. minutes of meetings, notification of changes to your address, shareholders etc.
– If you use a company, Your personal information will be on a database which is searchable by the public too
– Potential disputes on how the profits are to be distributed between you are the brother – trustee has absolute discretion here, but if you both control the trustee how do you resolve disputes. What if you have a high income and he has a low income, do you distribute more to him to save tax etc?

The company as trustee for the trust will provide the most benefits and flexibility.

Trustees can be personally sued and this could lead to the loss of personal assets. Companies offer limited liability which will add a heap of protection.

If you just use a company (without a trust) you will pay more CGT (no 50% reduction available) and it will not be flexible as dividends  can only be issued in accordance with shareholdings – but the company could get around this to a certain extent by employing people. Company shares are also considered property – so if you are sued they could fall into the hands of creditors.