Forums / Getting Technical / Legal & Accounting / Business structure assessment

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  • Profile photo of mahdeen18mahdeen18
    Participant
    @mahdeen18
    Join Date: 2004
    Post Count: 13

    Hi everyone, long time member, first time forum poster.

    I am trying to establish to best structure in which to purchase my future properties. Everything I read and am told (in seminars) says not to buy anything in my own name but set up a company/trust structure to minimise tax and risk etc. However, I have recently spoken to a property accounting specialist and he is adamant I should be buying in my own name to begin with then down the line set up a trust structure for future properties to be purchased in. I am a single person and have no other beneficiaries to allocate trust income to.

    His advise is due to me residing in Victoria and is based on the additional land tax charges incurred by trusts in this state. I have tried to contact a few other accountants for a second opinion but everyone is still on holidays this week. Can anyone concur with or rebut this opinion? It is not my intention to only purchase properties in Victoria, but he says I have to weigh up the pros and cons of the benefits of the trust vs. the sliding scale of land tax that is quite hefty and only increases as you accumulate more stock.

    Thanks in advance.
    Tracey

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    Hi Tracey

    Firstly welcome to the forum and glad you came out of the closet so to speak.

    Yes your Accountant is correct that there is Annual Land Tax costs to consider however this is only one thing in a much broader arguement.

    You need to look at the bigger picture and your goals and aims both in the immediate and long term future.
    Asset protection and the ability to pay Trust income to the Company once positive so to cap the Tax rate are other considerations.

    Certainly there are costs associated with a Corporate Structure but again you would never buy a single property if you were concerned with the costs i.e Stamp Duty, Annual Rates, maintaince and repairs.

     

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    I think you should definitely have one property in your own name as your main residence so as to utilise the main residence CGT exemption.

    After that I think you should seriously look at discretionary trusts, mainly because of the long term tax savings and flexibility. The asset protection is a bonus.

    So rather than relying on others why not sit down with excel and work out 2 scenarios – 1 buying with a trust and 1 without and do some projections and see what differences it makes.

    Land tax is a large tax to pay – but after you get a few in your own name you will use up your threshold anyway and will be paying the same whether in a trust or not.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of mahdeen18mahdeen18
    Participant
    @mahdeen18
    Join Date: 2004
    Post Count: 13

    Thanks you both for your responses, greatly appreciated.

    Terry, I already own my own home in my own name so that’s sorted. I also have another apartment in my name. I just didn’t want to get up to having a handful of properties and hit a wall by not being able to borrow any more cash to buy more. The accountant advised me that even with a trust in place the banks will lift the corporate veil and see who is behind it. They will know it is still only one person’s income guaranteeing against default on payments.

    I still think it’s worth setting up a structure in which to purchase further IP’s and will do more homework as to the best best way forward for me.

    Thanks again for the advice.
    Tracey

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Your accountant is correct. Having a company or trust will not help your borrowing power – in fact it may hurt it in the long run as your taxable income will decrease.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    As Terry mentioned buying a DFT / Company structure certainly wont aid your serviceability.

    However structured correctly and utilising the equity in your own property there is no reason why you cant keep on buying.

    Trick is keeping the loans separate to avoid 1 lenders serviceability wall.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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