A HDT question

[Glebe]

Hi guys,

I've bought trust magic but I've lent it to a friend currently so I am hoping to get some advice so I don't have to rely on my failing memory.

Anyway, basically wife and I have $235k in the piggy bank and might potentially establish a hybrid discretionary trust to purchase a house, which we would live in and pay rent to the trust via a long term (6 years?) lease at market rates, then convert it to an IP and purchase our PPOR for which we will live in for the next 20 years.

Now from what I gather, renting off your own trust is possible, but a little iffy as far as ATO are concerned unless criteria such as below is met:

a) rent at market rates (easy)
b) long term lease (anything longer than 5 years is surely sufficiently long term yeah?)
c) a commercial reason for doing so (and this point is my question).

For point c), can my 'commercial reason' be the fact that it will be an IP in 6 years time, and I will therefore sacrifice capital gains priviliges. Or does it have to mean I intend on operating a home office or some such business from my home?

Are there any other conditions other than the three outlined above that need to be taken into consideration?

Thanks alot,

Glebe.

[Aceyducey]

Glebe - could you please post a pic on the forum of your Piggy Bank.

I've never found one that would fit $200K+ :D

Glebe, I'm not sure about the need to have a commercial need (and we do rent via a Trust). Meet the first two & speak to an accountant about the third.

Cheers,

Aceyducey

[DaleGG]

Hi Glebe

The stronger the use the trust is put to in terms of owning investments (including the home) the less likely the tax office will have a problem with it.

Buying an additional property or even a share portfolio in the same trust as your home could make a difference....

Dale

[Glebe]

Glebe - could you please post a pic on the forum of your Piggy Bank.

I've never found one that would fit $200K+


Thanks guys.

Acey - here are photos of my piggy bank:

http://www.bol.ucla.edu/~stack/Nebraska/StateFair/piggybank1-th.jpg

http://www.bol.ucla.edu/~stack/Nebraska/StateFair/kellywpiggybank.jpg

Dale, with my $235 000, if I were to buy a $600 000 house with $130 000 deposit in cash, a $500 000 mortgage and $100 000 in shares, all in the trust, I should be in the clear? If it helps, my wife owns a Professional Services business, so one room will be allocated to the business (home office).

[DaleGG]

Hi Glebe

There are no clear guidelines and no way of knowing whether or not that plan would be enough. However, for what it is worth, YES, I think it should be.

Bye the way, that little bit of information at the end of your post also makes it easier to argue the case based on asset protection strategies for a busines owner.....

Cheers

Dale

[Glebe]

Thanks Dale, you're great.