All Topics / The Treasure Chest / trust – disadvantages

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  • Profile photo of troyidtroyid
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    @troyid
    Join Date: 2003
    Post Count: 9

    Can someone explain the disadvantages of a discretionary trust when investing in property. I heard something about no exemption on land tax.

    Profile photo of InTheoryInTheory
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    @intheory
    Join Date: 2003
    Post Count: 12

    As far as i know (and i stand to be corrected), the only disadvantages with trusts, in relation to land tax, is that every time you approach the cap you need to create another trust and put any more properties you purchase into there.

    All this means is you incur the costs of setting up a new trust structure again, which is neglible when compared to the amount of wealth you can gain by investing.

    Cheers,
    J.

    Profile photo of DavidCDavidC
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    @davidc
    Join Date: 2003
    Post Count: 23

    Troy

    Under NSW legislation, a discretionary trust which owns property is subject to land tax immediately, as it is not subject to the land tax exemption.

    In the unlikely situation, that you have set up a unit trust, in these situations you would receive the land tax exemption. Most people do not set up unit trusts because it is not as flexiable as discretionary trust.

    The other disadvantages for trusts, it that if the trust makes an overall loss, this loss remains in the trust (until the trust makes a profit) and cannot be distributed out to beneficiaries.

    DC

    Profile photo of InTheoryInTheory
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    @intheory
    Join Date: 2003
    Post Count: 12

    David,

    Just curious, do you know if the same applies to hybrid trusts, and whether the rulings are consistent throughout all states?

    Thanks,
    J.

    Profile photo of ImstillhungryImstillhungry
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    @imstillhungry
    Join Date: 2003
    Post Count: 17

    Hi J.,

    Not sure where you are, but In QLD there is no distinction regarding trusts. All trusts are land taxed based on unimproved land value on a sliding scale the maximum being 1.8% for >1.5 MIL. The cap for QLD is 170K for trusts, NSW I think is around 260K (don’t know if trusts are taxed differently to this) and victoria do the .1c-5c in the dollar over 150K thing. In any case, you can potentially hold quite a few properties (depending on value) in a trust before you have to set up another. The cost of which I think would be well worth it in the long run.

    Hope that helps you out a little,
    Hungry[:D]

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Guys

    I am assuming we are not talking about wrapping merely buy IP’s. Certainly from a Qld perspective there is no Land Tax payable when you wrap.

    Cheers Richard
    [email protected]

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    Profile photo of davidfemiadavidfemia
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    @davidfemia
    Join Date: 2003
    Post Count: 89

    Hello,

    WA is much the same. Land tax is still applicable.

    David Femia

    Femia Property Group
    Property Investment Consultants
    http://www.femiapropertygroup.com.au

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