Forums / Getting Technical / Legal & Accounting / Can I turn Family trust into Hybrid?

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  • Profile photo of lifeXlifeX
    Member
    @lifex
    Join Date: 2004
    Post Count: 651

    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.[:D][:D]


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    Lifexperience

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

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

    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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    Profile photo of Old School SkataOld School Skata
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    @old-school-skata
    Join Date: 2001
    Post Count: 52

    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

    Profile photo of TerrywTerryw
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    @terryw
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    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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    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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