nothing.

Asset protection.
If you use a discretionary trust, the asset is not yours, the trustee holds it on trust for the beneficairies. So if you are sued, in most cases, the asset is not part of your estate for the bankruptcy trustee to grab.

Tax savings
The trustee has discretion (in a DT) on how the profits may be distributed. Usually you are able to reduce taxx by distributing the income to family members with the lowest incomes. The recipient then pays tax on this income (not the trust). eg. Kids can earn approx $2666 pa tax free (this financial year use the low income tax offset). So if you had 10 kids in your extended family (your own, step kids, grand kids, brother's kids etc) you could earn around $26,660 tax free. You then have an agreement with the kids whereby they give the money back to you.

Disadavantages of a Discretionary Trust
– maybe you will pay more in land tax ad some states do not give the tax free threshold to trusts.
– Trusts cannot distribute losses. if you the property is negative geared, it cannot reduce your own tax.

Tax accounting
– should only cost slightly more than owning the properties in your own name as the trust needs to lodge a tax return.

A unit trust is one where there are fixed units held. so any profits must be distributed equally in accordance with percentage of ownership. The units are an asset, so if you are sued persoanlly, your income and units may be lost to creditors.
Unit trusts are good for joint investments as everything is fixed in terms of profit share, control etc. You can also have your units owned by a discretionary trust for asset protection and tax reasons.

The only potential problems is with 5. this plan will only work if you take the money from step 1 as a separate loan split. Otherwise you could not attribute all the money you pay back to the investment portion.

Hi James

The money given to or loan to the trust wouldn't be income so i don't think it should be distributed to beneficiaries – as they may have to pay tax on it! it would just be an asset of the trust and can be invested in a bank account until you want to spend it.

I was thinking maybe you could give the money to a low income relative and they could lend it to the trust – if you can trust the relative though. But this has dangers too as what will happen if that relative is sued, goes bankrupt or dies. Probably not worth the risk.

my guess is that they are not passing on the full rate cut as it costs too much too leave!

Interesting question.

legally you maybe acting as trustee for his share. Has he been declaring the income in his tax return?

Any profit from the CG is added to your income after deducting expenses and the 50% discount if held more than 12months. So you would be paying some tax, but it may not be too bad when you consider it will be a max of 24%

Biggest problems:
– Offsetting any losses from the trust
– Losing land tax exemption for PPOR
– Losing CGT free status

Are you moving to the acreage?  if so you may be able to claim the land tax exemption and CGT free status on this property (if under 5 acres)

Hi Ted

Thats not my opinion but the lenders and mortgage insurers. Maybe you used St George who have their own LMI company?

I guess one reason they find inner city more risky is because of all the high rise apartments. Sometimes these buildings have various problems with Strata and building issues and having too many eggs in the one basket could be risky.

Another reason is probably left over from a few years ago where there was a rapid increase in new apartment buildings appearing in the city.