Following another thread with Lizzie's huge land tax bill, I would like to ask those who invest in NSW (though I doubt if I would buy another IP in NSW), what kind of trust (if any) : unit, discretionary, HDT etc. do you use to minimize the land tax. I know there is threshold for individuals but I will not buy in personal names. I asked a few accountants but did not get a definite answer.
Best structure to buy IP in NSW
- Thread starter oasis1frog
- Start date
Alex, as an accountant do you have IPs in your own name ? A lot of accountants & solicitors are in favor of trusts. I realise landlord insurance includes legal liability, but we all know insurance companies will always try to wriggle their way out of paying compensation.
I don't believe there is a threshold for hdt as it is classified as a special trust. I have a block of bats in hdt and I received a land tax bill !
I'm not a practising accountant. I work as an employee so I don't have job-related litigation risk. If you don't believe your insurance policies will pay out, why buy them? And would it surprise you to know that Jan Somers owns in her own name?
Alex
i could be wrong but i think alex once mentioned buying in DT's?
I'm in favour of buying in my own name even though i have a HDT. The extra stuffing around doesn't seem worth the effort for me.
Now that I have a partner who isn't working, a DT for the investments that have net taxable income makes sense. I don't plan on using a HDT for personal reasons, and I'm not going to start another argument about it.
Alex
It doesnt matter which structure you use. Just buy in a state where the land tax is minimal or do as i have done and spread across a few states to keep each one at or below the threshold (or as little over as you can).
I have a trust with a couple of IPs, share portfolio and some cash in it and i think its more trouble than its worth.
I have a trust with a couple of IPs, share portfolio and some cash in it and i think its more trouble than its worth.
Alex I agree with you (did I really say that?.....just kidding Alex!
). I personally have recieved advice on trusts from the leading experts on trusts and on analysis have not gone down this path for the following reasons:1. The legislation for trusts is constantly changing as it did with land tax and trusts in NSW.
2. The cost of compliance is increasing as you have to keep up with legislative changes.
3. The ATO scrutiny is increasingly and want more transparency.
4. The courts are increasingly willing to set aside agreements and trusts are not bulletproof.
5. They are bloody expensive to maintain....and to get accountants who are competent in these matters is hard as some SS members have said before.
Jan Somers as well as Margaret Lomas do not use trust structures. If it is good enough for them, then it is good enought for me.
Evand....well said. Everyone...I talk to says the same things about trusts. In addition to costs and getting financing for properties...they are pain in the backside.
I for one know one partner in a major professional firm (they are more risk of lawsuits) who ensures he has a mortgage on his PPOR. His theory is that if the people suing you don't know how much equity you have they won't risk taking a chance in case they get buckleys.....how is that for asset protection! Also large firms won't take on each other. How is that for cheap asset protection?
Agreed.
We have done this, and I think while you have a taxable income the tax benefits of owning in you own name are worth doing it that way.
Just make sure you have adequate Landlord's Insurance and Public liability.
IF you have serious litigation risk from your job, then a trust may make sense. I personally would never use a trust only for asset protection purposes. However, in certain circumstances, I can see uses for them (mainly succession and income streaming, especially if you have low-income family members).
Costs are relative. Trusts probably cost, what, a few thousand to set up and another 2 or 3k a year to maintain? If you have a million dollars in shares, say, then that's worth putting into a trust. More importantly, since moving from personal names into a trust will involve CGT, I think it makes more sense to do it at an intermediate level. Most people won't have enough assets to justify using trusts. Say you build your shares to a couple hundred k, and there's every indication you might have millions in the future. I would start using trusts around the couple hundred k mark, especially if you have people to distribute dividends to.
Properties are a different matter, since it's probably negatively geared, and I don't plan on using HDTs.
Alex
Costs are relative. Trusts probably cost, what, a few thousand to set up and another 2 or 3k a year to maintain? If you have a million dollars in shares, say, then that's worth putting into a trust. More importantly, since moving from personal names into a trust will involve CGT, I think it makes more sense to do it at an intermediate level. Most people won't have enough assets to justify using trusts. Say you build your shares to a couple hundred k, and there's every indication you might have millions in the future. I would start using trusts around the couple hundred k mark, especially if you have people to distribute dividends to.
Properties are a different matter, since it's probably negatively geared, and I don't plan on using HDTs.
Alex
The main benefits I see with trusts are (in no particular order)
a) asset protection
b) income distribution
- correct me if I'm wrong but I believe you can distribute income to parents. They can now contribute the money to super and draw it straight out again. This gives them a very low tax rate. They can then put the money back in the trust for further aquisitions.
c) passing on assets (never sell)
Big draw backs are
a) Running costs.
These can be more than than offset from the savings to be made
b) Land tax
This becomes less of an issue if you have large holdings in one state (ie you are close to the marginal rate anyway)
Agree. Seems like alot of hassle to me.. I've never been into the trusts. Once I read Jan's interview the penny really dropped. Keep it simple.
I have 3 IPs in QLD, 1 in NSW and still have headroom in both states. Once I get closer to the threshold I might just have to buy in another state..... Easy problem to fix.
Disclaimer - I have don't have a risky job
Yes...always good to keep it simple.
I think a lot of Accounants and Solicitors are making a good living out of this. A lot of over servicing here!
I think a lot of Accounants and Solicitors are making a good living out of this. A lot of over servicing here!
I agree accountants & solicitors are making good money out of trust. Especially in my case there was no proper advise on how to set up & use the trust. Yes I am two minds about using trust, and yes we don't know if the trust will offer any real asset protection until "judgement day". But to me it's an extra protection in case the insurance company doesn't pay up. But what I would like to know is what kind of trust (in addition to personal names) people use to buy IPs in nsw to minimize land tax.Yes...always good to keep it simple.
I think a lot of Accounants and Solicitors are making a good living out of this. A lot of over servicing here!
Interesting. I've always paid land tax on my HDT's (in NSW). Maybe I should get a refund and charge them 14% interest!
Agreed. Theres a term in business called 'rivers of gold' and it refers to a recurring income stream. Every business should create a recurring income stream somehow.
Trusts and companies are rivers of gold to accountants where they can continually service the client and earn income with no further lead generation costs.
They do this to satisfy regulatory requirements of companies and trusts with ASIC and the ATO.
Its a win win situation. That's win - win for the accountant.
Just another perk for investors' 'team of experts'
Thats why they are promoted so widely, especially to smaller investors.
Trusts and companies are rivers of gold to accountants where they can continually service the client and earn income with no further lead generation costs.
They do this to satisfy regulatory requirements of companies and trusts with ASIC and the ATO.
Its a win win situation. That's win - win for the accountant.
Just another perk for investors' 'team of experts'
Thats why they are promoted so widely, especially to smaller investors.
Yes...always good to keep it simple.
I think a lot of Accounants and Solicitors are making a good living out of this. A lot of over servicing here!
Good point Ebbie....about land tax (LT) and trusts in NSW.
I could be wrong....but I was advised sometime ago that no trust allows you to have a threshold for LT in NSW. This is because NSW does not have a threshold for LT when in a trust structure. By establishing and HDT you can deduct the expenses thats all.
Some people in the forum are led to believe that you can avoid land tax...I don't believe this is correct.
Also a HDT is not as strong for asset protect as a Discretionary Trust.
In anycase a very expensive and complex way to manage your affairs.
I could be wrong....but I was advised sometime ago that no trust allows you to have a threshold for LT in NSW. This is because NSW does not have a threshold for LT when in a trust structure. By establishing and HDT you can deduct the expenses thats all.
Some people in the forum are led to believe that you can avoid land tax...I don't believe this is correct.
Also a HDT is not as strong for asset protect as a Discretionary Trust.
In anycase a very expensive and complex way to manage your affairs.
Interesting. I've always paid land tax on my HDT's (in NSW). Maybe I should get a refund and charge them 14% interest!
My accountant is also an investor and she recommended not to use trusts, she also told us that her biggest client who holds many many properties has them all in her own name. I have plenty of insurance and understood that this would be adequate if something should happen down the track.
I would also not limit myself to which states I would invest in according to how much the land tax is likely to be. If I can make $100,000 on a purchase in a 12 month time frame is the land tax going to stop me from going ahead? Nah!
I would also not limit myself to which states I would invest in according to how much the land tax is likely to be. If I can make $100,000 on a purchase in a 12 month time frame is the land tax going to stop me from going ahead? Nah!
