Choosing the right structure to invest

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
[email protected]

One important point that Terry didn’t mention is that with a company you lose the 50% CGT discount for assets held longer than 12 months.

If you’re investing for capital gain rather than just income, then that can make a big difference.

GP

Arthurk,

I have just set up a company today with our accountant. We firstly needed it for our acn business, but our main use will be to purchase property with it down the track. I cant really help you on most of those questions but if you have a friend of a friend or someone you know of that knows an accountant, then hit them up for lunch and have a chat about where you should go from there. The accountant we used was my business studies course teacher at tafe from three years ago. I just rang him up and had a talk, and things went on from there. Talking with these sorts of people is awesome education. Just make sure you let them know where you want to go with your situation and they will tell you what you need to know. Goodluck with it, its a long road, education wise but once you learn it, it will stay with you forever, so they say.

Regards,
Chriso

Do you want cheaper call costs, fixed-line, mobile and internet. Email me at [email protected], and you’ll be up and running in no time. Free to sign up and free to leave, No contracts.

ACN is a MLM phone company entering the Australian marketplace..

There was a post TELSTRA Vs ACN on this forum a couple of days ago..

I’d contact Geo from this forum if you were interested in finding out more, he’s very helpfull.

REDWING

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hybrid discretionary trust can distribute losses… there’s plenty of posts at the somersoft forums about them.

Cheers
r

Hi All,
For information on trusts there is an article in API Magazine – October 2004 issue.

DC

Terry,

Just noticed in your earlier post you said:

From my understanding, it doesn’t have to be the trustee borrowing the money. I believe anyone can borrow money and then buy units in the trust, although I don’t know how closely related that person would have to be for it to still be considered a family trust.

In my own case, I’m intending to have a company buy units in the trust, and possibly myself as well. Neither are the trustee.

GP