Thanks Dave. That was one of the reasons why I started this post. Lot of the average investors like me read this forum to get advice or suggestions.
Accountant in Melbourne
- Thread starter Teshy
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Thanks Dave. That was one of the reasons why I started this post. Lot of the average investors like me read this forum to get advice or suggestions.
Good summary.
But, it seems like you are only considering one aspect - tax. There are a whole host of other things to consider.
Also there are a number of different ways to structure a structure - take the corporate trustee, who should be director, shareholder(s), wording of the constitution, succession issues on incapacity and death. Control of the company means control of the trust which means control of the trust assets.
With the trust, need to decide who plays what role. Should there be default benefiaries - what are the tax and asset protection issues, who is the named beneficiar(ies) what are the financing issues. Is the trustee a beneficiary - what are the stamp duty implications. Is it possible to amend the trust - who has this power and how is it exercised.
So even if you decide on a type of trust you then have to decide how it is set up.
Similar with buy in your own name(s). How to hold, JT or TIC, asset protection strategies, tax strategies, especially with private loans. So many ways to structure these things - some simple and painless and cheap.
Thanks Terry. I don't like complicated things. Right now it's just me and my wife as beneficiaries (no kids but possibly later down the track). I'm looking for a Trust that gives us benefit of negative gearing and asset protection.
Do you even need asset protection? You can only have one or the other usually.
Every thing is complicated even buying in you own names. There are a a multitude of issues you may not be aware of and a a multitude of different ways to structure things.
You wont find a trust that gives both asset protection and negative gearing because the are mutually exclusive. To get the gearing you must own the units. Units are property available to to creditors.
How you can get both is by strategies. There are a whole heap of different strategies you could utilise and apply depending on your situation.
And when you say asset protection who and what are you trying to protect from?
Im neither a soli or an accountant
My experience is, by the very nature of special or income units et al on issue, and borrowings needing to be in the name of the unit holder ( ideally) so the interest accrues across the trust income, those units are at risk
if you are self employed without PSI issues, then you dont have such issues because you can run various normal structures to stream pre tax income to a normal DT
The challenge with smoke and mirror structures, even ones that have specific PBRs around tax, until there is some case law or precedent in place regarding asset protection, one has no idea if she will hold water or sink faster than the titanic.
I go through this talk with a new client at least once a fortnight .........and ask them to read a couple of books and thence seek specific advice.
ta
rolf
So financing for unit trusts as well as hybrid trusts and PITs at 90% LVR are all difficult?
That may be the case, not too sure on that.
From what I read, Julia is constantly on the move travelling around Australia. She occaisonally works at Bantacs offices along the way, and gives talks, but I don't think she has any one office in which she sits from day to day. She is one of the most knowledgeable accountants that I know. She is very good on the tax law side of things.
Units are generally acceptable with many lenders,even with the "3rd party security guarantee"
A PIT is a hybrid in sheeps clothing from my experience with finance.
While its possible to slide HDTs through some lenders that typically dont do them, thats not a smart thing for future challenge or opportunity.
ta
rolf
Increased costs & lack of benefits (mainly mortgage related) don't seem worth for property investments. I would rather spend that money on good insurance policies and proper maintenance of your IPs by avoiding any 'negligence' issues. Instead of wasting money on paper, I would rather spend on the property itself. Especially if your day work is virtually risk free then why bother. If it is risky business you are doing then protect yourself from that business.
However, estate planning is a different beast.
However, estate planning is a different beast.
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Wouldn't any risk to your ability to get finance under this structure virtually negate all of these benefits?
Lots of lenders were lending to hybrid trusts... until they weren't.
And if the unit trust holds residential property, the ability to transfer units to a SMSF is only a benefit if you assume that having a lot of residential property in a SMSF is a good long-term investment decision in the first place (as opposed to having more shares and commercial property in a SMSF).
Selling units between parties for lower stamp duty is good, but you still have to pay CGT.
And land tax savings and the re-financing principle surely shouldn't weigh that highly in your choice of structure, given the additional costs and financing risks involved?
Flexibility is great too, if you have deep pockets to fill you accountants bank account, but on balance is this a structure that should be widely adopted by mum and dad residential property investors?
Probably not one for the general population, but still a valid structure to consider IMO.
The worry about finance is worth considering. Say some acquires units and then the value of the property increases and they are unable to get access to the equity to continue. One option is for the units to be sold and the trustee borrows. Another option is for the trustee to borrow and then onlend money to the unit holder to refinance the unit holder's loan. i.e. not the end of the world.
The SMSF strategy is seriously worth considering for 2 main reasons:
1. Super is a low or no tax environment, and
2. Selling units to your SMSF allows you to get cash out of your super which can then be used to pay down non deductible debt.
Some states do not have stamp duty on the transfer of units, but CGT will apply. However CGT could be reduced by a number of strategies. You just have to do a calculation of the costs to transfer v the potential savings inside and outside super.
Well said and my sentiments as well. That is why I asked the OP what value the property is.....$350k give me a break.
Agreed tpi. If a structure means the difference between owing a property and not then of course it would be better to have it in your own name. I recently discussed this with a client where the lender wanted a 10% deposit which would take them a year to save and we both agreed it was better to purchase the property in their own name to get the property.
many people have equity in their own home or in other ips and so the ability to obtain finance isnt an issue.
many of our clients prefer residential property over shares or commercial so the ability to move it into super and have a tax free rental income stream is attractive for them. There are many strategis to reduce or even eliminate the cgt on sale or transfer so cgt is a planning exercise.
disagree re the refinancing principle not being a significant benefit. Had one client refinance for the unit trust to redeem the units and used the 300k to upgrade their main residence. 300k of tax deductible debt. At 6% per annum thats 24k of interest as a tax deduction vs 24k of non deductible interest. At a tax rate of 30% thats approx a 7k tax saving per annum. 35k over 5 years. So disagree on that point.
depends what your goals are and i always tell clients the pros and cons and at least they know all the facts and can then decide what structure is best for them. We have many clients with properties in their own name and for their circumstancea it is the most appropriate structure.
many people have equity in their own home or in other ips and so the ability to obtain finance isnt an issue.
many of our clients prefer residential property over shares or commercial so the ability to move it into super and have a tax free rental income stream is attractive for them. There are many strategis to reduce or even eliminate the cgt on sale or transfer so cgt is a planning exercise.
disagree re the refinancing principle not being a significant benefit. Had one client refinance for the unit trust to redeem the units and used the 300k to upgrade their main residence. 300k of tax deductible debt. At 6% per annum thats 24k of interest as a tax deduction vs 24k of non deductible interest. At a tax rate of 30% thats approx a 7k tax saving per annum. 35k over 5 years. So disagree on that point.
depends what your goals are and i always tell clients the pros and cons and at least they know all the facts and can then decide what structure is best for them. We have many clients with properties in their own name and for their circumstancea it is the most appropriate structure.
