Hello,
Am very green in the knowledge re; Companys and Trusts.
I sort of understand that Companies are an asset protection tool, and Trusts a way to minimise tax.
I am married with 3 kids (all under age 13yrs) and currently own 3 properties.#1. a PPR.
#2. a tenented brand new built investment property $15000 neg geared p/a, purchased by leveraging off growth in the PPR. With a depreciation schedule in place.#3. the other only worth $68000, but owned outright and rented at $120 p/week.
Have now been pre approved by the bank to buy again using the cheaper #3 property and its rent yield as leverage.
Am in the process of placing an offer on a property I have found.Discussing with my accountant the desire to now form a company entity and family trust for the above mentioned reasons.
He has informed me that since the #2 property is so highly neg geared this would not be a finacially beneficial move.As I hope to keep buying more properties in the future, can anyone help me as to what is my best stratergy pls?
Cheers,
Dave.
Dave
Your accountant is probably right. To get the negative gearing benefit, the property needs to be held by a high income earning individual, unless you can get income into a trust to utilise the negative gearing loss.
The issue with holding the property in an individual's name is the lack of asset protection, which would have been safer if the property is held by a discretionary trust instead. Have you considered protecting the equity in the properties via a discretionary trust through a gift and mortgage back arrangement? That way, the equity in the properties are protected in the trust via a second mortgage while the individual owner of the property (presumably you) will still enjoy the negative gearing benefits.
Eddie
[email protected]Eddie,
Thanx very much for your reply.
My income is $87K gross p/a and my wifes is $47K gross p/a, plus the $120 rent p/w from property #3.
Again I am pretty low on the knowledge in this.re; discretionary trusts. But will speak to the accountant about it.
Then again do you by any chance know of some one with trusty knowledge of this to refer me to for setting it up, in the Sunshine Coast, Qld preferably ,or Brisbane area?Again thanx for your help.
Cheers,
Dave.
Shoot me an email, Dave. I can give you some referrals.
Eddie
[email protected]eddiec wrote:DaveYour accountant is probably right. To get the negative gearing benefit, the property needs to be held by a high income earning individual, unless you can get income into a trust to utilise the negative gearing loss.
The issue with holding the property in an individual's name is the lack of asset protection, which would have been safer if the property is held by a discretionary trust instead. Have you considered protecting the equity in the properties via a discretionary trust through a gift and mortgage back arrangement? That way, the equity in the properties are protected in the trust via a second mortgage while the individual owner of the property (presumably you) will still enjoy the negative gearing benefits.
Can you please explain the gift and Mortgage back concept, I am having trouble with the individual obtaining the negative gearing benefits when the property is not in thier name. Will the gift constitute a sale for Capital Gains Tax purposes and 2nd will there be any stamp duty implications. (QLD) If you gift the property to the trust what deductions will the individual have.
Eddie
[email protected]Bamdam
I am relaying info here. Don't quote me. Heard the arrangement from a lawyers' presentation. The general idea is – you gift cash equating the equity you have in the property to the trust. No CGT or duty because it is only cash (not property). The trust then loans you back the funds by taking a second mortgages over the property – again, no duty (mortgage duty has been abolished in QLD). You get the benefit of negative gearing because the property is in your name. If a creditor sues you, the bank and your trust have first and second mortgage over the property, thus providing you with the asset protection.
I haven't looked at the fine prints of how the legal documentation would flow and cannot obviously guarantee it would work but this is the general concept.
Eddie
[email protected]Eddie,
Thank you very much again.
The imformation is greatly helpful … all is quite complex but will be seeing Neal next week to hopefully tie it all up asap.
Cheers,
David.
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