YEah getting it out can be a problem, but you can store it there, re-invest it, and maybe take it out in later years when your income is lower.

To be paying more than 30% tax you would have to be on a taxable income of $120,000+, so you should not need anymore, especially if you have a spouse on this income too and a few other relatives getting distibutions from the trust. Also a lot of the general expenses will be deductible anyway. eg pet dog is a guard dog, depreciated over x years, all food etc a company expense.

Yep, you should really change it to IO.

Sounds like you may be with ANZ?? Just give them a call.

Hi Kashe

The biggest disadvantage maybe that losses are trapped in the trust, but think long term. Did you know your trust can distribute to a company and the company will only pay 30% tax. There is also may other things you can claim too.

I assume you are not self employed, but if you were you could probably divert income into the trust to offset the losses and reduce your personal tax. Even being an employee it may still be possible with a creative accountant.

Significant tax savings could be had down the track if you were to use a trust and your circumstances changed – eg one of you stops working.

Land tax is a bit of an issue, but after you have purchased a few properties in your own name you will have used the tax free threshold and will be paying the same tax anyway.

Asset protection is not an issue for you, but think of it as a bonus.

Anyway, before you buy the next property I would suggest you do the sums for buying using the trust and using your own names.

Also start doing some figures, or projections using excel. Helps to make sure you know about the what you can claim too as well as the cashflow side of things.

Good work Rhys. Getting your builders licence will be great. You just need to plan ahead develop a written plan of what you are going to do and when and how. I would suggest you do a lot of smaller projects before bigger ones. eg. 1 house and land x 6 instead of 6 units. Less risk and more flexibility, easier to get finance etc.

Hi John

Just think of depreciation as a non-cash deduction. You don't pay it but can still claim it. So a property may be cashflow positive before tax and negative after.

You shouldn't use your money in the offset as the interest on your home loan will increase.

If you put it in your home loan and then redraw this is better but still not ideal as each subsequent deposit into the home loan will be decreasing this investment loan (the money redrawn).

The best solution is to pay down your home loan and then to ask your bank to set up a new split for you.

THen for the next investment loan you can borrow X% from the same bank or different bank with the deposit and stamp duty coming from the new split you created. All investment loans should be interest only for as long as possible.

That is the ideal way to do it, but your LVR will be over 80% so a bit of mucking around, you may even have to pay PMI again if you pay the loan down and then set up the split above 80% again.

Hi John

eg may help.

Your trust buys a property for $100,000
Rent is $5,000 pa
Costs are $8,000 pa (interest, rates etc)
Depreciation = $2,000 pa

Taxable income is ($5,000) (loss).

But depreciation is a non cash deduction so the cashflow is only ($3,000). So you will need to inject $3,000 to keep the trust going.

Year 2
You found an extra bedroom you didn't know was there and rent jumps to $10,000
Costs $8000
Depreciation $2000
Net taxable income is Nil
You will also carry forward previous year's loss so Net income is ($5000)

Year 3
You increase rent to $15,000
Costs $8,000
Depreciation $2,000
Net income is $5,000 profit.
But you still have that loss from last year so Net income = Nil

Year 4+
taxable income is a profit as rents increase and losses are used.

(keep in mind I am not an accountant!)

Hi John

If your trust is making a loss you will need to inject funds into it somehow – either a gift of loan. Deductions can always be claimed by the owner of the builder and this will be used to offset other income. If no other income then the overall loss may be bigger – which can then be used in the future.

Keeping LVR at 80% will avoid LMI (with major banks), but it may be ok to go higher depending on your circumstances. Try to borrow the deposit from other property and lend to the trust rather than use your cash (put that towards your PPOR loan).