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Are you talking about USA finance. That term is not generally used in Aust.
If you have a LOC here the repayments are generally the outstanding interest each month
Some lenders allow this to be capitalised though.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
They are not your assets if held on trust. You might control the trust and be a potential beneficiary though, but just remember this control is only temporary.
If you are paying money, even from a loan account, to the trust then that is something that will work against you in servicing – whether there are losses or not. You will also have some legal and tax issues as well.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yes it would as it is your debt. best to have a company as trustee.
You would have an added issue too in that a trust is not a legal entity but is a tax entity, so could the trust claim the interest on your loan? I have a private ruling application in with the ATO at the moment asking this very question.
I also don’t understand what you are saying about the taxable loss.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Example 9
Trustee company owns property and suffers a court judgment. Lenders will no longer lend.Solution
Appointor can appoint a new clean company as trustee.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Example 7
For a person with a credit blemish a Fixed Unit Trust could be set up to own property with person A owning the units of the trust and person B being the trustee.Person A would be the one with the blemish and once that disappears person A could become the trustee and the beneficial and legal interests would merge and the trust disolve – probably without CGT and stamp duty if set up correctly.
I did this years ago for a client with a loan involved and the lender did not check the trust deed very well and approved the loan on the basis of the income of person B only.And another
Example 8
Very similar to the above. Person A acts as trustee for person B. B has the credit blemish in this case and the bank will lend on the basis of A being the legal and beneficial owner of the property.At a later date title could be transferred without stamp duty and CGT being triggered if set up correctly.
This is a bare trust arrangement.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Here is a copy of an article that I wrote back in 2016:
Trust Strategies to Increase Borrowing Capacity
Here are a few of examples of how using a discretionary trust can increase borrowing capacity.
Example 1Trust is set up to own property. Property increases in value. But the director of the trustee has suffered a credit blemish and no lender will lend.
Solution – change directors!
Get legal advice first!Example 2
Trust is set up to own property. Property increases in value. But the director of the trustee no longer is able service with just his income and the trusts rental income.
Solution – bring the spouse on as a guarantor. You could do this with properties in personal names as well.
Solution 2 – bring a friend on as a guarantor. The friend may need to be a beneficiary of the trust and/or a director of the trustee.Get legal advice first!
Example 3Trust is set up to own property. Property increases in value. The director of the trustee suffers a court judgment and no lender will lend to him. If this was a property in his own name he would be stuffed for 5 years but with a trust there is a simple solution:
SolutionDirector causes spouse/friend to be appointed director and then resigns. The loan is then refinanced with the new director providing a personal guarantee.
Get legal advice first!
Example 4A trust is set up to own property and loans are obtained with personal guarantees from person A who is the director of X Pty Ltd the trustee.
After a while person A sets up a new trust with a new company Z Pty Ltd as trustee and himself as director. Person A does not tell the new lender about the personal guarantees he has given to the lender for the first trust. Since the new company, Z Pty Ltd, is a separate legal entity to the first company X Pty Ltd, its debts need not be disclosed.
If the lender asks person A about any personal guarantees he has given he should disclose those guarantees. If the lender does not ask person A need not disclose. Thus the borrowing capacity could be increased by setting up new entities.
This method has been promoted by a certain property author and criticised by various brokers, including myself in the past because the new lender would know about the personal guarantees given by person A as there would be a record on A’s credit file. However as time passes these credit file hits become less of an issue and will disappear from the file after 5 years.
Get legal advice first!=
But before doing anything described above each person and the trustee should seek legal advice as there are various legal implications involved.
To be balanced, here are some ways a trust can hinder borrowing capacity.
Example 5The property’s rent is less than the interest on the loan.
Lenders will not be able to use negative gearing addbacks because the trust has no other income and it does not pay tax. This will reduce serviceability slightly.
Example 6The property has a taxable loss of $10,000 per annum.
This could potentially save the individual $5,000 per year in tax but would result in a $10k carried forward loss for the trust with no immediate tax benefits unless the trust had other income.
This has 2 effects
Less cash to pay down non-deductible debt
Less cash flow making it slower to build equity.Trusts are complex legal arrangements so see your lawyer before attempting any of this on your own.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
No one can can comment really. You need specific advice.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
trusts can’t borrow as they are not legal entities, but holding assets as trustee can improve borrowing cap, if the trustee is a company. I have written about this on here before.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
But will it be a main residence or a rental?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
These days with low interest rates I think buying a main residence first is ideal because
a) you get a CGT free asset (potentially)
b) no land tax
c) owner occ rates
d) improved serviceability over time
e) ability to debt recycle into investments at lower interest rates
f) ability to add value
g) emotional aspects
h) because it might cost more to rent the same place
i) ability to move out and rent the property yet still keep it CGT exempt.
etc
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You can actually have many many residences, but not more than 1 can be exempt from CGT for an overlapping period.
But the good part is that you can decide which one to count as your main residence for CGT at the point of sale of the first one. The strategy is to wait until the first is sold and then make an assessment at that point. In some cases it will be better to choose the one that is sold and in other cases choose the one that wasn’t sold.
You might choose investment one because
a) you could use interest, rates and other costs on the place you are living in to reduce the CGT
b) and if the property is your main residence at the date of your death, the property’s cost base will be reset to the value as of the date of debt.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
In that case the 6 year rule could reset as long as the property qualifies as your main residence.
But if you own another property you cannot choose both as the main residence for an overlapping period.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
have you previously lived in the IP? If so the 6 year rule could be reset.
If not the 6 year rule could start from you moving in and out again.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I presume you did a AB search?
A trust is a private relationship, not registered anywhere. You need to find out who is operating the business. It can’t be a trust but would be a company or an individual who is acting as trustee.
If you do a title search it will show who the owner of the property is, but it will probably be leased to someone else. However, with Commercial leasesthe tenant often registers their lease on the title to the property so you could prob find it that way.
Other than that the name will be on invoices, websites etc.
You could also do an ASIC search on the business name.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
No. It will hinder you as it is a debt.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Why do you need an investor?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I think you are conflating different things. The lawyer is not trying to give business advice when drawing up a deed, but giving advice on the legal issues.
An accountant might be the one to talk about for business advice, but they would need to be a registered tax agent to give tax advice and a lawyer to give legal advice such as who should play what role in a trust, terms of the deed, what happens on death, incapacity, stamp duty effects of the trust etc. Once the trust is set up the accountants can knock themselves out with all the business advice they want.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I am not sure what your comment about “lawyers, in my opinion, usually run good legal practices (small businesses), but otherwise make poor accountants, business advisers, and financial planners.” means or relates to. We were discussing whether non-lawyers can set up trusts and no one claimed lawyers can act as accountants etc.
The fact remains that a trust is a complex legal relationship in equity set up by deed, and only a lawyer should set them up and advise on the structuring of a trust. Once they are set up the trustee could then go and get accounting or financial advice depending on what they want to do. They would only need financial advice if investing in financial products perhaps, prob don’t need much accounting advice, but would need some tax advice along the way.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Since it is illegal for accountants to give legal advice, they shoud get the lawyer to set up the trust directly with the client, they can jointly advise if they want, but the contract would need to be between the law firm and the client. Otherwise no insurance coverage.
WHat happens in practice is an accountant will buy a deed template and fill in names and addresses, often giving illegal advice along the way. I have seen a few of these where the accountant had used cleardocs deeds, which could about $300, and then charged the client $1500. There is no value added and the client would have gotten a better result if they had went directly to cleardocs. The accountant gave legal advice indicating the trust would provide asset protection on divorce, which was wrong, but also the discretionary trust did not have an appointor position, and upon review I found it impossible to vary the deed to add one.
As for succession planning this is also legal advice. I am not sure what a non lawyer could add in terms of trust law, corporations law, superannuation law or succession law. How could an accountant advise on succession? I have 2 masters of law degrees in this area, one in Estate planning and the other in wills and estates, plus the undergraduate law degree.
Accountants should stick to commonwealth tax and accounting.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Tell me this Steve, would you let an accountant set up your will? Hopefully you would answer no.
If no, then why would you go to an accountant for a trust set up?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
