[WelmanParticipant@welmanJoin Date: 2014Post Count: 4]

March 17, 2014 - 10:02 am

Thanks, TerryW.

Taking further the above examples. In a hybrid Trust scenario where a person borrows money to buy Units in the Trust, and the Trust buys the property, the Trust earns $20,000 a year of rental income with expenses of $5000 and depreciation $10000.  Therefore the net income of $5000 is distributed to unit holders/beneficiaries.

My question is that because the depreciation of $10000 is being deducted in the Trust before distribution of net income, am I correct to say that there remains a $10000 of cash in the Trust and that it accumulates year after year?  Since this surplus cash cannot be distributed, can this extra cash be use to pay property expenses(rates, insurance, etc) for the next year cycle, and in effect increases the net income of the Trust?

[WelmanParticipant@welmanJoin Date: 2014Post Count: 4]

March 11, 2014 - 1:34 pm

Thanks, crj.

crj wrote:

If your trust is a unit trust and you have borrowed money to buy the units even if that borrowing is secured by property owned by the trust …then you might be able to claim the losses eg borrow $400,000 to buy units in trust, trust buys property for $400,000.

It is interesting to know this scenario is possible. Only that using unit Trust could mean less distribution flexibility and lesser asset protection (individual own the units).

It would be interesting to know how the Chan & Naylor PIT Trust (afaik it's a hybrid trust) would handle distribution of loss and depreciations.  Anyone has experience on this? I imagine the setup cost would be expensive, but I would like to know if it is worth it.

[WelmanParticipant@welmanJoin Date: 2014Post Count: 4]

March 11, 2014 - 1:36 am

Thanks for this insight, Sunnycoastinvestor.

Sunnycoastinvestor wrote:

 if you have a trust, the only way you can distribute from that trust is if there is a taxable profit in the trust.  If the trust has a loss, the loss is carried forward to a future year to be offset against any taxable income.

If I get a special kind of Trust (Chan and Naylor PIT) that allows claim of negative gearing (I presume is considered lost of profit) against wages, in this case, I maybe able to distribute rental property losses (and depreciations) to individuals?