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  • Profile photo of valluvanvalluvan
    Participant
    @valluvan
    Join Date: 2017
    Post Count: 12

    Hello,
    We are first time buyers/builders and have recently purchased a land to build our own home to take advantage of the first home owner’s grant and no-stamp duty.

    The land contract is on both mine and wife’s names and the mortgage is in our names, even though I am the income earner of the household. Our plan is to build our home, live in it for 1 or 2 years and then move out and convert it into our first IP. Now we are on the verge of signing our Build contract.

    We have been recently been advised by friends that it is better to have a PPR on the the name of the least income earner’s (my wife in this case) and an IP using a strucure such as a Trust or a company.

    In our case what do we do? should we request the build contract to be on my wife’s name and then once it’s converted into an IP in two years time, shift from my wif’e name into a trust?

    Suggestions gratefully received…

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

    Was your friend qualified to give such advice?

    If the main residence is owned by the lower income earner this may be good for tax purposes if the income will exceed the costs once you move out. But income is only one aspect to consider. What about estate planning, asset protection, CGT, land tax, serviceability, and ability to use various strategies?

    If you transfer to a company or trust have you considered the stamp duty, new loans, discharge of mortgages etc? What about land tax going forward?

    The building becomes part of the land so ownership of the land is what counts and not who is on the building contract – for tax etc.

    Best to get some legal advice.

    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 valluvanvalluvan
    Participant
    @valluvan
    Join Date: 2017
    Post Count: 12

    Was your friend qualified to give such advice?
    If the main residence is owned by the lower income earner this may be good for tax purposes if the income will exceed the costs once you move out. But income is only one aspect to consider. What about estate planning, asset protection, CGT, land tax, serviceability, and ability to use various strategies?
    If you transfer to a company or trust have you considered the stamp duty, new loans, discharge of mortgages etc? What about land tax going forward?
    The building becomes part of the land so ownership of the land is what counts and not who is on the building contract – for tax etc.
    Best to get some legal advice.

    Thanks for the response Terry. However it has made me even more confused. Are you saying its better to retain the land/house in my wife’s name rather than trust/compant etc? Apologies we are very new to this and not sure If I follow you

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

    No I am asking if you have considered the points I made. I know nothing about your situation so could not recommend one way or the other.

    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 JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    Terryw in relation to you,
    say a new client walked in and is earning $200,000 a year and wanted to structure asset purchases over the next 10 years and already had $300,000 cash in their bank and never owned any asset in australia.

    Their goals are simply to get financially ahead and are open to any path that assist this,

    would you look at setting a Family trust for different tax and sales advantages? what would be the main things you would be concerned and thinking?

    be keen to hear from someone with such a diverse fields of qualifications.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Valluvan,
    As Terry has indicated, there are MANY more things to consider before making a call one way or another. As just one more example to think about, I could argue that living in your newly-built PPOR for 2 years, then SELLING it, might turn out to be a far better option than keeping it as an IP. But you would need to confirm that first with your favourite adviser, as my example may not work for you and your situation.

    So, if you speak with your adviser, and they take you through the benefits of “Selling after 2 years” as opposed to renting it out, then the subject of “Whose name to buy it in” could change markedly too, depending on which path you choose to take.

    In short, you need to know just which way you are planning to act in the future BEFORE making decisions NOW. If you change your course of action halfway through, that could lead to massive extra expense (just because you changed your mind). Far better to KNOW in advance which way is best – and that means having ALL questions answered before you make your first move.

    It would be awful to find you have bought in the wrong entity, costing you heaps in CGT in years to come, just because you weren’t sure which way was best when you first started out. I hope that gives you pause…. I’d hate to see you jump in when you haven’t yet fully learned what you are jumping into. As Terry said, go get some legal advice, along with any other education on the subject you deem necessary.

    Benny

    “If you think education is expensive, try ignorance!”

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

    Terryw in relation to you,
    say a new client walked in and is earning $200,000 a year and wanted to structure asset purchases over the next 10 years and already had $300,000 cash in their bank and never owned any asset in australia.
    Their goals are simply to get financially ahead and are open to any path that assist this,
    would you look at setting a Family trust for different tax and sales advantages? what would be the main things you would be concerned and thinking?
    be keen to hear from someone with such a diverse fields of qualifications.

    Hi Jaxon

    Well, it would all depend. I would probably suggest if they are going to buy property to buy the first one in their own name and get access to the main residence CGT. If they are concerned about asset protection perhaps a gift and borrow back to a related trustee of a discretionary trust. Estate planning needs to be tied in with disposing of your assets to a trust too.

    The next one would depend on the state of purchase, savings rate, cash available, whether negative geared, estate planning etc. If NSW probably not a trust due to the higher land tax.

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

    I had a friend who bought a property years ago, in his own name because he wanted to get negative gearing benefits. He had a non working wife with no income and he was on the top tax bracket. The property jumped over night and he sold it within 2 years at double what he purchased it for. He was still on the top tax bracket and wore the full capital gain while his wife’s income was $0. But he probably saved $1000 or so on the negative gearing…

    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 Aussie18Aussie18
    Participant
    @aussie18
    Join Date: 2018
    Post Count: 1

    This thread as and site is extremely helpful !

    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    Terry I have had multiple conversation with people who have strategies that have a good reasoning in the wrong overall context (in my opinion) but they can only see what they can see.

    very interesting answer, to confirm clearly the value in the FHOG/no CG on PPOR etc is the reasoning for the in name purchase? (among a few others tax etc, especially in NSW if they do not have a large portfolio)

    estate planning meaning the will or legal document has to accompany the individuals structure otherwise it would have to be re done or amended, or be deemed void? is that what your implying?

    Holy moly literally was not aware of how large the land tax difference is for Trust or company owned properties…I guess its more on the lower end it matters for NSW but will have to look at each state.

    I know this is a debatable question but realistically do you think any Trust, PTY LTD or any other legal setup in Australia provides any real safety? and if so as it limits the exposure to the individual and allows that entity to go insolvent instead of the individual, then what in cases of an illegal action, as it appears to me there is no legal safeguard for any individual in Australia who has broken any level of law in any way, so why spend excess funds to try protect from such, instead have excess funds to do right.

    therefore I came to the conclusion a simple PTY LTD, Family Trust is the only real need as you don’t have yearly ASIC fees for the Trust and still have different levels of benefit when it comes to earnings etc and levels of discretion. as a general point be interesting to hear your thoughts as I have not studied the law and hold no qualifications in any way in relation to its operations.

    and in relations to Valluvan I highly suggest speaking with a professional like Terry as the question your asking is so much more complex than the information you have given and seeking professional advice from someone who can break it down sounds like it could deeply assist.

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

    Estate planning is more than wills and documentation. Its about planning who takes control of ‘your’ assets after your death or incapacity (or even while still kicking).

    I get many clients wanting to gift large sums of cash, or even the majority of their wealth to trusts. They don’t realise that this is really giving assets away. It is generally not a good idea to gift all your assets away, even if it is to a 3rd party that you control. If you control a trust it is only temporary. One day you will lose capacity which will mean someone else will then control the trust or you will die and if you die someone else will control the trust. Trust assets cannot form part of your estate or will (except notional estate in nsw) so you can’t leave assets owned by a trustee via you will. Also children at taxed at penalty rates with income from a trust, yet taxed as adults on income received from a testamentary discretionary trust. So one strategy may be to maximse your estate at death, not minimise it.

    Also you can pass control of a trust to people by structuring this in the trust deed or separate deed by passing on the appointor position, but what if you have 2 or 3 kids and pass control of one trust. There are plenty of cases of sisters ripping brothers off etc (one case involved a sister taking $1mil for herself and leaving nothing for the bro).

    Trusts – if you have a properly set up trust, and properly transacted its assets will be safe if you become bankrupt. Even if you are the only director, shareholder, appointor and primary beneficiary. I don’t think there is any legal question about this or debate.
    But there are exceptions such as transfers from you to the trust done within the previous 5 years at under market value.

    If there is a company acting as trustee there will annual asic fees of about $262 (rising annually with cpi)

    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 JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    Yeah ok, so I guess you would be seeing that then for minimization of restructuring into personal names for some incentives as much as the other way.
    Yes I am sure this happens without a doubt, hence why a will with wishes attached is what I have been told is as bulletproof as it gets.
    I have heard debates if that individual breaks the law then Corporate bail piercing powers of the court can get power to look through any defense structure and can deem (even a shadow director) to seize assets, take control and shutdown what they want.
    the most famous case is Alan bond, it even happened in WA not that long ago to a big judges son I believe.
    Do you have any thoughts on this?

    -Yes, but a Trust holding a company does not have the fees.

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

    A will is hardly bullet proof, not sure what you mean by ‘wishes attached’ but a letter of wishes has no legal weight. It all depends on the circumstances. If you don’t own property, it can’t be passed via your will – example spouse owned property but that can be attacked.

    The corporate veil? In some instances the corporate veil could be attached and the director of a company could be personally liable for company debts – insolvent trading, OHS breaches, misleading and deceptive conduct etc. But if a director does not own assets there is not much that can be attached other than the assets of the company in question – which may be $2.

    Alan Bond gave personal guarantees of about $900million I think. He defaulted on loans and they when after him personally and trusts and companies he controlled indirectly. I think one argument was that others were providiing him with benefits while he was bankrupt and these benefits should be taxed as income. I don’t think they succeeded, but a lot has changed since then anyway.

    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 JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    Yeah well once again literally been told the Wishes/will setup is as good as it gets by multiple lawyers what do you think is better?

    I was of the understanding that if they deem you to be the owner they can seize, not if its simply setup in your name.

    so your saying the Law has no legal way to take control of funds that were taken and funneled through legal setups to protect funds if it was done correctly?
    I feel like given any circumstance if I am a governing body I would take measures to recoup any illegal losses and “try” to provide justice to the losers of that situation. this makes so many levels of ethical sense and if we do not do that, I feel that is creating an incentive for wrong behavior.
    thoughts?

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

    Better in what sense?
    Are you trying to avoid assets falling into the wrong hands at death due family disputes or gain asset protection on potential bankruptcy of beneficiaries.

    There are many ways that funds funnelled thru different entities can be attacked. There are claw back provisions in state legislation and in the bankruptcy act. e.g you gift money to a spouse, relative or discretionary trust and go bankrupt that money can be clawed back. However the longer ago the gift was the less chance that it would be clawed back.

    However, if a trustee or company where to buy shares which doubled in value over night, that equity in the shares might be safe from attack – the initial gift may be clawed back, but the equity may be safe. But companies have shares and if you own the shares and go bankrupt the shares will fall into the hands of creditors who can then get at the company assets.

    With discretionary trusts, depending on how they are set up, no beneficiary has any interest in the trust, other than a right for proper adminisation. So even if a beneficiary becomes bankrupt, the creditors can stand in their shoes, but unless the trustee gives them something they are merely potentially beneficiaries of the trust.

    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 JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    haha, so for a will avoid Assets falling into wrong hands, wouldn’t Asset protection be more worthwhile by the structures as you stated after?

    Yes that one of the purposes and benefits of a Discretionary Trust that it creates another level of separation and protection.

    I think you explain all of this really well, Terryw has anyone come out with an Australian book that explains this within the last 5 years as I know a lot of property books sell well.

    but I would Imagine these conversations and points broken down in to easy to understand and double ended points (unbiased) would be so valuable if it was designed for the investor and almost a navigation of potential risks, I have yet to come across such a book.

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

    Under NSW law if a person controls a trust, company etc, the assets of those entities could be ‘attacked’ by the courts having the powers to deem teh assets to be part of the estate of the deceased – under certain limited circumstances.

    So if you know or think someone may attack your estate after you death you have to plan carefully, even if you do not live in NSW.

    There are no books on asset protection in Australia – plenty of USA ones which won’t apply in the Australian situation. I am writing one on asset protection, but it might be a while until it is finished.

    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 JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    Hence why your understanding of the field must be largely valuable to people planning for such as from what I understand that is your expertise?

    I think that’s a great idea mate, the main point I personally find valuable from asset protection is LVR, Ownership setup and Cashflow In and building a safety net, in regards to the areas your talking about I think a clearly Australian book that breaks it into clear pieces would be very valuable so people can understand the levels of value of Wills, Trusts and company and even references to historical events, man that would be a great book.

    Look forward to it Terryw.

    Profile photo of AussieKiwiAussieKiwi
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    @aussiekiwi
    Join Date: 2012
    Post Count: 29

    So Terryw
    would one have to follow this scenario
    Investment Trust – Should all IP have there own Invest..Trust?
    So do you know about a piggybank trust and your thoughts on bucket company. would like to know if any of this make senses

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

    In an ideal world you would hold each property under a separate trust, but you have to consider administration and fees. However in QLD it can work out cheaper due to the land tax savings.

    Not sure what you mean by a piggy bank trust, but I sometimes recommend clients gift to the trustee of one trust and have the trustee of the second trust borrow this money – or even the individual borrow the money back. I call this trust the banking trust which may be the same thing.

    Bucket companies – I often recommend, or structure so you could add one in later.

    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/

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