To Trust or not to Trust: that is the question.

Wouldnt use a DFT as NB are not available.

May consider a Unit Trust.

I think the first question to ask is .. why you need to have a trust to own your IPs. it will all depend on personal individuals levels. if you are an employee and don't have a high risk business or life background. why would you get yourself into a complicated structure which makes your life much more complicated. unless you start with purchasing more than 3 IPs, then i might think of all these structures but still.. is it really worth it? unless you believe you will get sued one day…. and lost everything……

i think the problem with DT is that you will lost the "Negative gearing " benefit and your rental property loss will not go against your personal tax level, because trust doesn't distribute any loss. however this would be a different case if you are planning to start with positive geared property portfolio.

if anyone has more opinion pls feel free to discuss….

Hi BB

That means you are making a profit which is good. Don't forget the trust doesn't have to distribute to you. Some of all could go to a child/husband/relative. If none are available, or already earn too high, then you could distribute to a company and cap the tax at 30%.

Sorry guys, been on holidays!

The rules are :

1. A capital loss can only offset a capital gain.
2. A revenue loss can offset both income and capital gain.

Now the tricky bit – can a revenue loss in a trust offset a capital gain derived by the trust?

The law defines the "net income" of the trust to mean "the total assessable income of the trust estate … as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions". 

It is the "net income" of the trust that will then be assessed in the beneficiary's hands when distributed, albeit the character of each type of income is generally retained (recent cases have started to cast doubt on this long held principle). 

Therefore, in my view, to determine the net income of the trust, any revenue loss will be offset against the net capital gain and the reduced net capital gain is then distributed to and assessed in the beneficiary's hands.

Obviously, for the losses to be available, the trust will need to make a Family Trust Election.

One thing though – I am surprised by various reports that accountants were not familiar with trusts.  Trusts are one of the most fundamental aspects of our tax system (and will continue be so, unless the Henry Review does something drastic with them) and accountants are repeatedly trained on the subject.  Having said that, be aware that in Australia, anyone can call themselves an accountant.  In my view, always go with a Chartered Accountant or CPA because these are accredited professional bodies.

Eddie
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Or the plumber with a leaky tap at home – speaking of which, I haven't lodged my own tax return for 2008 yet!

Eddie
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Hi Daniel

The issues with making a Family Trust Election are:

1. It is generally irrevocable for a discretionary trust.

2. Once made, the trust cannot distribute outside the "family group".  The term "family group" is specifically defined and is generally restricted to certain generations and degree of blood lineage relative to the nominated "test individual".  If the trust distributes outside the family group, the distribution will be subject to the Family Trust Distribution Tax at the highest marginal tax rate of 46.5%.  Yes, ouch.

Having said that, it is important to make a Family Trust Election to enable the trust to recoup tax losses, pass on imputation credits to beneficiaries, etc. 

These are highly technical but your accountant should be familiar with the rules.

Eddie
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Thanks for the vote of confidence, Terry! Yes, of course – more than happy to help.

Eddie
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I am based in Brisbane but this forum is more like a hobby for me than a marketing tool anyway.

Good luck with your investments!

Eddie
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Hi Pete

a) Directors will always be required to sign guarantees. Having one cuts down on the risk if something goes wrong and cuts your exposure to the banks. Beware, some banks may ask guarantees from shareholders too. So I would have one director only. But bear in mind if the director's income is low you may need the help of the spouse to guarantee too – this should be able to be done without them being director.

b) You are basicially buying from yourself, so it can all be done at settlement. eg Trust buys $400,000 property, loan is $350,000. Your loan is currently $340,000. When you settle you will have $60,000 left over. $50,000 goes to the trust. Your solicitor can help you with the conveyancing side. Its all done simulataneously.

c) The trust may have a cash profit, but still have a tax loss. What happens here I think depends on your trust deed's wording. For tax returns I think it would be only the taxable income that is distributed but your trust would still have cash left over. I am not sure now what would happen, but think there are different ways to calculate income.

d) Under the Corporations Act (2001) section 126, the company can authorise an agent to act on its behalf.
http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s126.html
But a bank may not accept this.
You may also want to set up a power of attorney with your partner. You will then be able to sign on her behalf. But be careful. Banks will probably insist on the director/guarantor seeking independent legal adivice before settlement. So they may not accept power of attorney at this stage.

Hi Pete

The residency requirements are not necessarily the same as the immigration requirements. If you are ordinarily resident in Australia you may qualify to act as a director:

CORPORATIONS ACT 2001 – SECT 201A

Minimum number of directors

Proprietary companies

             (1)  A proprietary company must have at least 1 director. That director must ordinarily reside in Australia.

http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s201a.html

Even if you do not ordinarily reside in Australia your partner could be director and you be the 2nd director.

I am not sure of the FIRB requirements on buying property through a company if the 2nd director is a non-resident.

I think there would also be tax consequences if you were a non-resident and trustee of a trust.

But you can still set up the trust with your partner being director of the trustee.