All Topics / Help Needed! / Trusts distribution

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  • Profile photo of ptnptn
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    @ptn
    Join Date: 2006
    Post Count: 74

    Hi guys,

    Got a question I need help on.

    I have a piece of land that is going to be subdivided and sell off.  It won’t be completed until the next financial year.  When all this is done, I stand to make $200k profit. My question is, knowing that I will make the $200k (finger cross), can I distribute the fund to myself now?  Effectively borrowing money from the bank to pay myself first and when the deal is done, distribute the remaining part.

    Thanks in advance for your help.

    Regards
    ptn

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
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    i dont get it???

    1. You know you will make 200k from this subdivsion ( im guessing from past sales etc)
    2. You want to somehow get hold on this 200k BEFORE the subdivsion ? …?? from who? the buyer? the bank??

    Regards
    Michael

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    Profile photo of ptnptn
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    @ptn
    Join Date: 2006
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    Hi Michael,

    I got a bit excited and with all the editing, I missed out the important part.

    I have a family trusts which purchased an IP some time ago.  This IP has some equity after refinance. I want this equity (borrowed $$  loan from bank) to distribute $50k to myself this financial year so that when I sell my subdivided lot next year I can claim that $50k distributed already.  Assuming that I can sell the vacant lot for $200k.

    Hope this is a lot clearer.

    Regards
    ptn.

    Profile photo of TerrywTerryw
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    @terryw
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    This is a complex Q. It may be possible to convert future profits into income at present – but since trusts cannot retail income it would be to be distributed – but I guess it could be done as  loan account.

    You need a good tax advisor for this.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of Dan42Dan42
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    @dan42
    Join Date: 2008
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    Quote:
    I have a family trusts which purchased an IP some time ago.  This IP has some equity after refinance. I want this equity (borrowed $$  loan from bank) to distribute $50k to myself this financial year so that when I sell my subdivided lot next year I can claim that $50k distributed already.  Assuming that I can sell the vacant lot for $200k.

    Hope this is a lot clearer.
    .

    So you want $50k income this year and $150 next year? No, you can't do it. You can't record any profit on the sale of the land until you at least have a contract on the land.

    You can access $50k from the trust, but it would be treated as a loan, rather than taxable income.

    You will be taxed on your share of profit from the trust, not how much cash you actually receive from the trust.

    Profile photo of Kohlhagen GroupKohlhagen Group
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    @kohlhagen-group
    Join Date: 2011
    Post Count: 58

    Hi ptn,

    Is your concern that you will earn too much income in the year you sell the land, and therefore pay high marginal tax rates?

    Or is your concern about simply accessing the money tied up in the land and trust?

    Regards

    Richard

    Profile photo of ptnptn
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    @ptn
    Join Date: 2006
    Post Count: 74

    Thanks for your answer guys,

    The main reason I need to access the $50k now is because I need a bank loan for another IP.  The bank won't lend me money because I do not have enough servicability (disregards how much equity or asset I have).   I am told that the trusts can employ me to do investment activity and therefore pay a fee. In this case, an annnual salary.

    I've also been advised to open a company on top of the trusts to formalise it.

    Further more, as KG insinuated, when the trusts distribute 200k in the next financial year, I am up for 200k taxable income.  By paying me early, I am reducing that hugh taxable income next financial year.

    I don't know what is legal and what is possible.  I am getting mixed message and the IP is extremely important to me.

    Thanks in advance for your advice guys.

    Ptn

    Profile photo of TerrywTerryw
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    @terryw
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    Does the trust have $50,000? If so it can lend you.

    If not, then how could it pay you? It could borrow but if you are the person behind the trust and cannot borrow then your trust probably cannot either.

    Opening a company on top won't formalise things! I thnk you are mixed up a bit here. You might be talking about establishing a company to act as trustee – but if your trust has already been set up and it already owns land then this is no simple matter. First, you will have to establish if stamp duty will be payable on the transfer of title and then you will have to actually transfer title to the land. This will also entail getting new loans if the land is used as security.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of ptnptn
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    @ptn
    Join Date: 2006
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    Hi Terry,

    1. The trusts has $50k cash equity. 
    2. The company will be a trustee of the trusts.
    3. The company will pay me (individual) a fee for service.
    4. Do I need to transfer the land into the company when it's just a trustee? confused why…

    If the company pays me as individual, then the bank only need to know about my income.  Will they question the trusts or the company?

    Thanks
    ptn

    Profile photo of TerrywTerryw
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    @terryw
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    hi Ptn

    Sounds like you don't understand trusts – no offence meant, but keep on learning.

    The $50k cash equity, is this cash or equity? If it is cash can't you just borrow it off the trustee?

    Who is the trustee now?

    The company can pay you a fee – but why would you want to do that?

    The trustee is the legal owner of the assets of the 'trust' so all assets should be in the name of the trustee.

    Maybe you are trying to increase your borrowing capacity by having the trust pay you a fee? This won't really work as the banks will want to see the tax returns of hte companies and trusts which you are associated with. The fee will also be taxable income to you.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Profile photo of ptnptn
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    @ptn
    Join Date: 2006
    Post Count: 74

    Hi Terry,

    No offence taken and I agree, I don't understand trusts very well.

    Yes, the goal is to get higher borrowing capacity.

    In order to do this, I need an annual salary that is being paid by a company (or a trusts??).  The 50k cash equity comes from refinance from the bank a year ago.

    I guest what I am asking is HOW I can do it. (I've been told it can be done and have been done by wealthy developer).

    Thanks guys,

    ptn

    Profile photo of TerrywTerryw
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    @terryw
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    It might work if you were employed by some other third party

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of ptnptn
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    @ptn
    Join Date: 2006
    Post Count: 74

    Hi Terry,

    The funny thing is that this was brought to my attention by a CBA mortgage manager.  I can't deal with him since he knows too much about my financial position but he recommend that I research into trusts and mortgage broker.

    Is there anyone here specialising in trusts mortgage?

    Thanks in advance.

    ptn

    Profile photo of TerrywTerryw
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    @terryw
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    Most of the brokers here understand loans for trusts.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of JpcashflowJpcashflow
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    @jpcashflow
    Join Date: 2007
    Post Count: 575

    Whats the point of having a trust vs normal name?

    Cheers

    Jpcashflow | JP Financial Group
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    Profile photo of TerrywTerryw
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    @terryw
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    Jpcashflow wrote:
    Whats the point of having a trust vs normal name?

    Cheers

    much greater asset protection and tax flexibility which can result in substantial tax savings.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

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