Can I turn Family trust into Hybrid?

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lifeX
Member
@lifex
Join Date: 2004
Post Count: 651
February 4, 2005 - 8:34 am
Help please,
I have set up a cheapie online family trust with company trustee. Can I put a negatively geared property into it…..do I use income units or something.
Or do I have to get a full hybrid discretionary trust set up by accountant?
Thanks in advance.[][]
Live, Learn and Grow
Lifexperience
PropertyGuru
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@propertyguru
Join Date: 2003
Post Count: 1,502
February 4, 2005 - 9:34 am
Hi there,
I had family trust before and then with the help of my accountant I changed it to Hybrid trust. I think you can do also.
Cheers
PropertyGuRu [sultan]
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Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
February 7, 2005 - 3:25 pm
You can use a disrectionary trust to hold a -ve geared property, but cannot offset the loss against your own income.
Terryw
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Old School Skata
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@old-school-skata
Join Date: 2001
Post Count: 52
February 10, 2005 - 7:28 am
Terry,
if I (individual) was to borrow say $30K at 7% from a bank for a deposit and loan that money to your trust to buy a property, i understand that the interest on your loan ($3OK) is not tax deductible. However what if the trust paid you interest on your deposit eg at 1%. As you are now receiving income from your borrowed funds – could you now claim the interest as per neg gearing.
ie borrow 30K at 7% = $2100
Trust pays 1% on 30K pa = 300
Loss = $1800
Dale GG refers to it in his Trust Magic book but uses a higher interest rate being paid from the trust to the individual and states the interest is deductible(ie borrow at 6% and receive 7%). In this instance – would there be a need to set up a hybrid trust just to claim the neg gearing benefits?
O.S.S
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
February 12, 2005 - 1:53 pm
O.S.S
How would you borrow the deposit? Against existing property you own? Then the trust could get the loan. But usually most people just borrow in their names and then lend to the trust at the same interest rate – so the trust can then claim the interest on this deposit (with a written agreement).
You would still probably need a hybrid to claim most of the benefits of negative gearing.
eg a $100,000 property with a 80% LVR. You borrow $20,000 and pay 6%. If you charged the trust 10% for this money, you would be making an extra 4% of $20,000 = $800 per year (and paying extra tax on this). The trust would then be claiming another $800/year as a cost = a large loss
I just realised I read your post incorrectly!
If you did it the other way as in your example, the ATO may disallow the deduction as you a deliberately making a loss. But even if it was ok, the deposit would have to be much larger for it to have any effect, but it possibly could work.
Terryw
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North Sydney
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Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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