The trouble with trusts is the income is discretionary. One year you may get some, the next could be different.

I guess it is the same with employment though, you could get fired anytime.

Terryw
Discover Home Loans
North Sydney
[email protected]

Some tough questions there!

1) It is very easy to change trustee’s if your trust deed allows it. but this could have major implications such as
a) changes to the loans (loans are in trustee’s name)
b) could result in stamp duty payable again in certain circumstances (see http://www.cleardocs.com and your state revence office website)
c) if the ATO considers it changes the beneficiares then they may class it as a resettlement of the trust and hence CGT and stamp duty may be payable on assets.

2) property owned by a trust is not your asset, so if you are sued personally it MAY be safe. If a company is sued, the liabitity is often restricted to the company and not the directors/shareholders unless they have done something wrong.

3) Anyone receiving a distribution froma trust must pay tax on that money at their relevent tax rate. ie it is added to their other income. if they do not have other income, then the first $6000 is tax free.

Distributions from a company are a bit different. usually the company has paid tax on its profit, so you are not charged tax again on this income, unless you have a tax rate more than the company rate of 30%, when you would pay the difference as extra tax. If your inocme in lower, then you may actually get some tax back.

4) I think a trust is way more flexible as it allows the income to be distributed to the lowest tax payers first (amoung a large range of beneficiaries). Company profit must be distributed to the shareholders in accordance with the shareholding percentages. Athough you could just pay money to basically anyone as some sort of fee as well.

5) It is very easy to borrow using a trust. the trustee must guarrantee the loan, and the loan is assessed on the trust income and/or the trustees income. The trust deed must be supplied to the lender who will have their ‘legal’ people review it (and may charge a extra fee of $100 or so). If a company is trustee or if just borrowing in a company name, then the directors must give personal guarrantees and loans will be assess on their own personal income etc.

Some lenders are no insisting on taking a fixed and floating charge over companies as well. This is like a mortgage over teh company assets. This is a pain in the arse as it causes problems when going to different lenders for subsequent loans.

Lenders may also insist on the trustees/directors in getting independent legal advice so they fully understand what they are getting themselves into. So extra legal fees may be charged by your solicitor for the explaination of this – $100 approx.

If you are planning on buying many properties, it is wise to consider having just one trustee/director. Many banks have maximum exposure levels per client (especially for low docs) and if a husband/wife go in as joint trustees, the limit is half of what it would be if they went in with one trust each.

6) Companies are more comlpex to operate. There are many rules relating to companies with extra reporting requirements (and costs) related to ASIC.

7) I don’t know about investing overseas, but would imagine you would need a company or trust registered in the country you are investing in.

The ATO will also want to tax you on your world wide income.

ps. I am not an accountant, so don’t rely on anything i have written.

Terryw
Discover Home Loans
North Sydney
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That is a fair amount of equity. If you could get a LOC, you could possibly buy a property for cash, do a quick reno and then mortgage that property at the value (rather than purchase price), releasing 100% (or more) of the money you put in originally, and then do the same thing again.

Terryw
Discover Home Loans
North Sydney
[email protected]

There may be a few ways to increase debt in a way to keep the ATO happy.

eg. You could sell you share to your spouse. They would have to borrow money to buy your share (increasing the deductible debt). They money your spouse pays you would be tax free (as from main residence) and this could go towards your new house. You may even qualify for exemption of stamp duty as you are spouses!

Another method invloves selling your house to your turst. Stamp duty would be payable, but the whole debt would then be claimable (ie including increased loan amount) and you would have all the benefits of a trust. And no agent’s commissions.

Terryw
Discover Home Loans
North Sydney
[email protected]

Having no job is not a barrier to getting a loan.

You could get a ‘no doc’ loan on your Newcastle property to 65% of the LVR = $156,000 approx.

Use this as deposit on a new property in Sydney based on a 65% LVR loan. You could buy something around the $380,000 mark.

But you must be sure you can service these loans. Renting the newcastle one will help.

So you could get a loan if needed. You just have to decide which strategy.

1) Sell Newcastle and purchase in Sydney
2) Keep Newcastle and purchase in Sydney
3) Keep Newcastle and Rent in Sydney
etc

I Think Sydney prices are absurd, but I can’t see them comming down (except maybe units). Sydney has show great growth long term in the past and may/probably continue to do so.

Terryw
Discover Home Loans
North Sydney
[email protected]

Set

Sorry I didn’t really tell you much there!!

I am not 100% sure, but think NZ finance applications will still appear on your CRAA over here. Baycorp is a global company (ouch) so be careful.

Terryw
Discover Home Loans
North Sydney
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Thanks for that Niki and good luck with it all.

I agree that some of these properties that are cashflow positive are still bad investments and I would only ever (now) buy a property that had potential for capital growth. Without growth, cashflow is useless.

Terryw
Discover Home Loans
North Sydney
[email protected]

There are various credit card promotions happening such as transferring you balance and receiving a 5.99% interest rate for the first 6 months (Amex). Maybe this is an option, but just be wary of having too many hits on your credit file – evry time you apply for credit a note is made on your file, and this does not look too good when later applying for loans,

Terryw
Discover Home Loans
North Sydney
[email protected]

Hi Gavin

This is a specialised area of lending. I will ask around for some rough idea on LVR etc, but it is generally rather low at around 50-60% LVR for these. IO should not be too much of a problem, but getting it based on valuation of $1mil (not contract price) will probably be hard.

Usually the applicaiton fees for these are also high at around 2% of pp and the valuations are very high too – about $5000 probably.

Terryw
Discover Home Loans
North Sydney
[email protected]

Ausprop

Good idea. I beleive that you can find all of this sort of information ont he ATO site. The rules have tightened considerably in recent years, but it is very easy to set up a religious association – which could be classed as a charity under most trust deeds. But these would jsut be companies and would have to pay 30% tax unless they get the tax exemption which is separate.

I think I read somewhere that sanitarium was a registered religious charity, but kellogs weren’t (incidently, both were started by fundamentalist christians) and therefore they did not have to pay tax. kellogs were saying it was an unfair advantage.

Terryw
Discover Home Loans
North Sydney
[email protected]