Advice from gurus required

Hey guys,

Here is my story...I'm 35 with a mrs who doesn't work and 1 kid and another on the way.
I own my house valued at around 850k.
I have a wage that earns me 100k a year.
I have a company that makes 200k a year on average for the last 5 years that I am the only employee of ie it only has a director.
I have no debt.

I have just setup a family trust to go with the company and will begin running my 200k profit a year business through the trust.

What I was wondering is if i buy an investment property in the trust and the investment property loses me 50k a year ie outgoings a lot more than incomings can I offset that 50k against my 200k a year earnings?
What also happens with depreciation?

Any thing else I need to look out for ?

Any advice on if I'm doing the right thing would be greatly appreciated.
 
What I was wondering is if i buy an investment property in the trust and the investment property loses me 50k a year ie outgoings a lot more than incomings can I offset that 50k against my 200k a year earnings?
Yes

What also happens with depreciation?
It is also recorded as an expense against earnings

Any thing else I need to look out for ?
Your trust will not have much asset protection if you are trading through it and you'll need to ask and accountant about:
CGT on sale
Land Tax thresholds

Any advice on if I'm doing the right thing would be greatly appreciated.
NEVER say your wife does not work when she has '1 kid and another on the way'. (they don't like it):D
 
For asset protection you need a separate trust to hold investments. The profit making trust distributes income to the loss trust to soak up the losses.

Depreciation is no different.
 
Any thing else I need to look out for ?

Hang on....for the last 5 years, your company has been netting 200k a year, on top of the 100k gross it pays you.....and you've not looked at tax efficient strategies before now?

I'd suggest you also look out for a better acct
 
Hey guys,

Here is my story...I'm 35 with a mrs who doesn't work and 1 kid and another on the way.
I own my house valued at around 850k.
I have a wage that earns me 100k a year.
I have a company that makes 200k a year on average for the last 5 years that I am the only employee of ie it only has a director.
I have no debt.

I have just setup a family trust to go with the company and will begin running my 200k profit a year business through the trust.

What I was wondering is if i buy an investment property in the trust and the investment property loses me 50k a year ie outgoings a lot more than incomings can I offset that 50k against my 200k a year earnings?
What also happens with depreciation?

Any thing else I need to look out for ?

Any advice on if I'm doing the right thing would be greatly appreciated.

Hi Sunny, and welcome.

There are alot of unknowns here and I strongly advise you speak to your accountant.

IF you are thinking of buying your IP in the same trust - which I assume is a Unit Discretionary trust - then I would say no. The income going into the trust will "offset" the negative income going out.

As I am not an accountant I cannot advise but would suggest that perhaps another trust is needed. Perhaps a Discretionary Trust.

I hope that Julia or Marg may be of assistance on this one.

Depreciation is a great advantage and can also be regarded as a "loss" against your income. The newer the property - the better the depreciation.

What is your goal Sunny? Do you have an Investment strategy yet or are you just enquiring and are not quite sure.

The only reason I ask is that you need to look at what your Long Term Goals are in regards to your Strategy and what type of structure and set up you need.

Start with your end goal in mind.:)

Regards JO
 
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Thanks all...

Yes propertunity I know being a mother is a full time job..my wording was only based on the financial side that she doesn't actually bring in a wage.

Not sure why I really need asset protection, not planning in on going over my head atm but interested in the pros and cons nonetheless.

The losing 50k investment property was just an example, of course I would like positively geared investments but if i was to find a property/area which i thought would have good capital appreciation but loss making short term i just wanted to know if those losses were tax deductable or offsetable against my other trust income?

No I havent really looked at tax effective strategies until now, my main goal was to learn to make money first.

I have just been to deliottes who I beleive are one of Australias best accounting firms and they charged me 5k to tell me to set up a family trust. I also have another accountant has offered no tax strategies, I will be more assertive in asking in the future.

Finally the trust is not a unit trust but a discretionary/family trust.

No I dont have a plan as such...all I have is a fair bit of cash coming in and sitting in the bank and a fair bit of tax going out and a mrs who makes nothing.
I was hoping to dip my toe in to residential ie low maintenance units in the cbd to begin with and then possibly CP down the track.

I am no novice to investing but am with property, i am an ex stockbroker and classed as a sophisticated investor and have strong returns in both bullish and bearish markets.
I also have a govt job which provides wage security not that I really need it.

I guess my main goal is to not to be a wage slave/provide for kids etc...how I will get there will be a combination of my current investing style plus property now.

Any more advice appreciated
 
Hi Sunnny, welcome to the forum for a start.
Bummer about the accounting advice to date.

There's a couple of well considered accts who post here, and am sure others will come along and recommend them in time. JGG has a good pedigree, especially with trusts, though have never used him....some regular posters are happy to use him remotely....and there's some savvy MB posters who know more about trusts than some accts I've spoken with.

Now, that's all boring stuff and easily resolved......What I am interested in is how you maintain 200k for 5 years without it going down......or more curiously, up....power of compounding etc.

I have a little brother who is a broker with BP (and ex merchant banker/commercial accountant), and I doubt he makes that much consistently......though a school mate who uses my brother told me a month ago my brother lost him 700k in the GFC (MacBank options)....but he wasn't too concerned (presumably because little bro did him ok prior.)
 
Hi Winston...geeze you guys are big on detail..

Now, that's all boring stuff and easily resolved......What I am interested in is how you maintain 200k for 5 years without it going down......or more curiously, up....power of compounding etc.


Stockmarkets no doubt like property have some years where money comes in easy...Since my company has started 5 years ago my best year was 260k and my worst 150k...the average over the last is around 200k.

The 260k was in 2007 and the 150k was during the GFC...I would expect this year with having more capital and a better market to making 300k before tax, this can change either way though with 1 good or bad trade.

I have 15 years experience trading myself and lost all my money in the first 5 years...the next 5 years were fine tuning and now the money has been coming in...

I am a speculator in the market and not an investor and tht also may be why compounding asnt been that good.

I want to know not just tax effective strategies with property but also the right path to begin.

Yes I have done quite a bit of reading on this forum and others for history.

Thanks again
 
I have just setup a family trust to go with the company and will begin running my 200k profit a year business through the trust.
I think this need to be clarified first.
I have just been to deliottes who I beleive are one of Australias best accounting firms and they charged me 5k to tell me to set up a family trust.
So your not new to investing, but came away one phrase for 5K?
I'd ask for a refund. Though I suspect everything else went over your head head while you nodded (or ducked).
I agree that they are "one of the best" when it come to charging fees though.
Finally the trust is not a unit trust but a discretionary/family trust.
Nothing wrong with a DT, just depends on many other factors.
No I dont have a plan as such...all I have is a fair bit of cash coming in and sitting in the bank and a fair bit of tax going out and a mrs who makes nothing.
Maybe you need one.
I've previously posted on what I believe to be good reading.
http://www.somersoft.com/forums/showthread.php?p=630629&highlight=barber#post630629
 
Quote:
Originally Posted by sunnny
I have just setup a family trust to go with the company and will begin running my 200k profit a year business through the trust.

I think this need to be clarified first.

I have a pty ltd co that was doing the investing before, I will be withdrawing the funds from that but keeping the co as the trustee I think.
So the trust will be making the money and then paying it to the beneficiaries...ie I make 200k...I pay my partner 80k and the other 120k profit I either just sink into the co and get interest or what I want to do is use that excess money for property.

Quote:
Originally Posted by sunnny
I have just been to deliottes who I beleive are one of Australias best accounting firms and they charged me 5k to tell me to set up a family trust.

So your not new to investing, but came away one phrase for 5K?
I'd ask for a refund. Though I suspect everything else went over your head head while you nodded (or ducked).
I agree that they are "one of the best" when it come to charging fees though.

I was unhappy with the total amount...I originally asked for a quote for financial advice re best way to go for my situation which came close to 2k.
A meeting was held which they charged another grand or so for and I asked them to write me a letter stating I was a sophisticated investor(my previous accountant did this for free). They charged me $500 for the letter and another $800 for the meeting.
They then asked if I would like them to setup the trust which they charged around $1500 for.
So i got the bill and it was itemised the original quote plus plus plus...I wont make that mistake again and have spoken to a friend at ernest and young who may help me in the future.

Quote:
Originally Posted by sunnny
Finally the trust is not a unit trust but a discretionary/family trust.

Nothing wrong with a DT, just depends on many other factors.

Can you elobarate on this please?

Quote:
Originally Posted by sunnny
No I dont have a plan as such...all I have is a fair bit of cash coming in and sitting in the bank and a fair bit of tax going out and a mrs who makes nothing.

Maybe you need one.
I've previously posted on what I believe to be good reading.
http://www.somersoft.com/forums/show...ber#post630629

Cheers...will read that tonight
 
Hey guys,

Here is my story...I'm 35 with a mrs who doesn't work and 1 kid and another on the way.
I own my house valued at around 850k.
I have a wage that earns me 100k a year.
I have a company that makes 200k a year on average for the last 5 years that I am the only employee of ie it only has a director.
I have no debt.

I have just setup a family trust to go with the company and will begin running my 200k profit a year business through the trust.

What I was wondering is if i buy an investment property in the trust and the investment property loses me 50k a year ie outgoings a lot more than incomings can I offset that 50k against my 200k a year earnings?
What also happens with depreciation?

Any thing else I need to look out for ?

Any advice on if I'm doing the right thing would be greatly appreciated.
Maybe just ask yourself one simple question,why property if your business is going so well,you seem to be able to connect all the dots so far with your finanical strategy,what i finds strange is how come after all these years in business,you now start to look at lowering the "TAX",that you have already paided,just just does not sound right to me.btw what business are you in??..willair..btw i'm no guru,they all drive german cars and stand on soap boxes and sell dreams..
 
Basically to Spread risk...I dont plan on going agressive in property

Secondly I have been on forums for years and have seen many people who invest firstly as a reason to lower tax...I have learnt making money is the first goal and tax minimisation second.

I hope to use property to acheive both goals...obviously to earn money predominately.

I work for myself with my business trading...
 
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Forgot to add i withdrew a lot of money from the co 18 months back to buy the house which may have slowed the compounding down a tad aswell.

Apologies for spelling in previous posts...need to work the site out a bit more ie editing etc
 
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...geeze you guys are big on detail..

Yeah we are. That can be a bit off-putting to a new poster. It is not because we are tearing at you...but as the saying goes "the devil is in the detail".

In this game you have to dot your i's and cross you t's or you are left wide open to being taken down. Hazard of investing I guess. But the people on here are mostly very helpful and want to see you do well.
 
Cheers and fair enough.

To elobarate more on the tax side I was single 5 years ago when i set up the co...it was or appeared to be the best setup at the time for my business to minimise the tax I was paying.

Now I have a partner and kids is the reason for the trust to distribute earnings.

So back to my original questions it appears that my losses against earnings in property can be offset against my earnings from the markets if they are both within the trust...I am guessing this is the best way of doing it. Excess earnings that either offset or paid out will then go into the company.

Depreciation is a great advantage and can also be regarded as a "loss" against your income. The newer the property - the better the depreciation.

Also is there a place where i can easily access a depreciation schedule...obviously the newer a building the more depreciation?

Thanks again for the info you guys have passed on...feel free to ask me if you want to know a little about the other market.
 
Cheers and fair enough.

To elobarate more on the tax side I was single 5 years ago when i set up the co...it was or appeared to be the best setup at the time for my business to minimise the tax I was paying.

Now I have a partner and kids is the reason for the trust to distribute earnings.

So back to my original questions it appears that my losses against earnings in property can be offset against my earnings from the markets if they are both within the trust...I am guessing this is the best way of doing it. Excess earnings that either offset or paid out will then go into the company.

AN accountant needs to answer this one. I am aware that the NG loss in a Family Trust is held within that trust and not set as a loss against your income. However, I would think this set up would be more beneficial if you had a Positively Geared property as you could distribute the income to the lower income beneficiary.

When you consider that your NG would not be offset against your income INSIDE the Family trust (not to be confused with profit in the trust), you may be better placing a NG property in an Hybrid Discretionary Trust.

Again, I am really thinking aloud and would love for someone to confirm this.

I have also read recently that the ATO is now questioning the use of HDT trusts.

Personally, I have a Family Trust for Business profit but I have HDT's for IP's. The trusts save me from paying Land Tax with multiple properties in Queensland but in NSW, I find the cost and uncertainty of them is starting to outweigh the supposed advantages of Asset protection.


Depreciation is a great advantage and can also be regarded as a "loss" against your income. The newer the property - the better the depreciation.

Also is there a place where i can easily access a depreciation schedule...obviously the newer a building the more depreciation?

This depends on the building costs. You would need to purchase a report based on your property specs for real figures.

A brand new 400k property would give you approx. $4500 year on building depending on the schedule. Furniture, fixtures and fittings are usually depreciated upon a sliding scale..This is a really broad scale as the spectrum IS broad. A rough guide is 2.5% of building costs.{/ I]

Thanks again for the info you guys have passed on...feel free to ask me if you want to know a little about the other market.


Remember - property is generally a long term strategy for Capital Gains. :)

I think it's a great idea you are "expanding" and diversifying.:)

PS: I believe there is also a limit to the amount of distribution to beneficiaries under 18 before tax is paid.

Regards JO
 
Hi Sunny,

Id suggest speaking with a very savvy property accountant. One which understands investing well.

Earning such a high income one could end up paying a lot in taxes, and if not structured right by your accountant they could be costing you lots of money.

Nathan.
 
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