All Topics / Legal & Accounting / Profits and Losses in a Trust

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  • Profile photo of MattsaMattsa
    Member
    @mattsa
    Join Date: 2003
    Post Count: 5

    Hi there,

    I’m a newbie to this site but have found it extremely valuable in the short time I have been subscribed. There are lots of valuable experiences and knowledge out there which are being unselflessly shared, which is fantastic.

    I have a question. If I place a negatively geared property into a trust (discretionary or hybrid) will the losses be calculated each year and remain in the trust ? Will they be offset against any gains ?

    Let me paint the picture a little better here. I am currently living in the UK and have been for a couple of years. As I don’t earn any income through a salaried job in Aus, my only income is through my investment properties. Losses I have incurred can’t be offset against my personal income as I don’t have any. So, while I don’t have a personal income the losses incurred on my -ve geared properties can’t offset against anything.

    If this situation changes so that the name for the title and loan is the trust, therefore any profit and loss remains in the trust, what will happen ?

    I have a copy of the Trust Magic on the way and I am also waiting for a response from my accountant, but I thought I would consult the “real world” as well.

    Regards

    Profile photo of MattsaMattsa
    Member
    @mattsa
    Join Date: 2003
    Post Count: 5

    Thanks for you feedback TerryW and Property Guru. I had a feeling that the losses would work this way but it is good to get confirmation. Does this then mean that I could offset any accrued losses incurred against a CG that I could make if I decided to sell the property, thereby reducing the amount of CGT that is due ?

    Regards

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    No losses can be distributed from a trust, including hybrid trusts. The losses will be calcuated each year and can be rolled over and overset against future income.

    With hybrid trusts, there is a way around this by the unit holder borrowing to by the units in the trust. That way the ‘loss’ goes to the person rather than the trust. Since the trust is not paying interest, it would probably make a profit, this could even be distributed to someone other than the unit holder.

    In your situation, if you have other investment income outside of the trust, then this can’t be offset against a loss in the trust, but may possibly be reduced by using the hybrid trust. If you only have losses, then these will just be rolled over.

    That is my understanding anyway.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of PropertyGuruPropertyGuru
    Participant
    @propertyguru
    Join Date: 2003
    Post Count: 1,502

    Welcome to forum Mattsa!

    Yes you are right any losses in the trust can be offset against any gain in the future. Discretionary trust carries the losses for the future. I think it’s better for you to use trust.

    Cheers
    [:)]
    PropertyGuRu
    Who want to be billionaire?

    Profile photo of melbearmelbear
    Member
    @melbear
    Join Date: 2003
    Post Count: 2,429
    Originally posted by Mattsa:

    Thanks for you feedback TerryW and Property Guru. I had a feeling that the losses would work this way but it is good to get confirmation. Does this then mean that I could offset any accrued losses incurred against a CG that I could make if I decided to sell the property, thereby reducing the amount of CGT that is due ?

    Mattsa, you can only offset the Capital Gain against a Capital Loss – not against ordinary income.

    Cheers
    Mel

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