Buying via a trust
- Thread starter LoneWolf
- Start date
Above it appears you are buying under a trust?
Yes Terry, when is your book available, need to read up more on this topic, rather than looking stupid here,
No you are NOT buying under a company. Your lawyer has also said the same. The company si the Trustee of a trust. The Trustee will be the legal owner of the TRUST property.
Here where it can get confusing..
Many developrs allow trust to own the land. They then BUILD using a company so that the risk of the project losing $$ isnt borne by the trust and risk loss of land in a court. Not for a passive small dev where you contract for a builder to just build it. Better for where you are contracting sparkies, plumbers, materials etc. In that case at the end they invoice the trust for the finished job....Thats one for P Platers
Here where it can get confusing..
Many developrs allow trust to own the land. They then BUILD using a company so that the risk of the project losing $$ isnt borne by the trust and risk loss of land in a court. Not for a passive small dev where you contract for a builder to just build it. Better for where you are contracting sparkies, plumbers, materials etc. In that case at the end they invoice the trust for the finished job....Thats one for P Platers
Don't worry it took me about 5 years to get that concept.
There are 2 forms of ownership. Legal and beneficial.
Think of a 2 year old baby. Mum opens bank account as trustee - she is legal owner. But it is not her money as it belongs to the baby - he is the beneficial owner. Mum's name is on title, but the assets belong to the beneficiary.
For instance if mum went bankrupt this money wouldn't be available to creditors. But if the baby went bankrupt, once 18, then it would be available to his creditors.
There are 2 forms of ownership. Legal and beneficial.
Think of a 2 year old baby. Mum opens bank account as trustee - she is legal owner. But it is not her money as it belongs to the baby - he is the beneficial owner. Mum's name is on title, but the assets belong to the beneficiary.
For instance if mum went bankrupt this money wouldn't be available to creditors. But if the baby went bankrupt, once 18, then it would be available to his creditors.
I hope they didn't just charge you for that!
No shes kinda like a friend
So what you are saying is, trust owns the land, then setup another company to do the building. Trust sub contracts to the comany for the building, company then sub contract to contrators to do the job.
This is what you mean?
Correct me if i am wrong
Abc company can go bankrupt, however the assets are still owned / belongs to my trust
If my trust go bankrupt, then the asset is liable
So in reality. What are the protrction here?
Say we build the homes, and someone sues abc company, the trust is still going to be liable for it, no?
In practice, abc company is usually a $2 company and doesn't do anything, so it won't go bankrupt. That's why it's usually not a good idea to have a company that operates a business, say, as trustee.
If you build in the trust, yes, the trust is liable for everything, but you probably won't be, so your personal assets should be protected.
Paul's 'trust owns land, company builds' thing takes it a step further. The trust is the passive owner of the land. The (separate) company contracts with builders, etc. So if the company is sued, the company might go bankrupt and the land might be protected inside the trust.
I use 'might' because there are a lot of variations, including your own personal responsibilities as directors.
Thanks for clarification.
As a L plate developer, is it worthwhile to go this extra step of setting another company for the building aspect?
I mean, I will sub contract to a builder to help with the building
Will it be over kill in my case?
A company provides limited liability. A trust cannot be sued (- as it doesn't exist). only a legal person can be sued.
If the company is conducting a business in its own right it could be sued and usually the matter stops there. The shareholders are not liable and the directors are not usually liable.
However if the company is sued in relation to the trust then it will be indemnified out of the trust assets. e.g a tenant sues the landlord = company as trustee. Company gets a judgment against it but it gains access to the assets of the trust to satisfy that judgment. so the trust assets will be at risk. However the shareholder, director and beneficiaries are ususally safe from being sued - depending on a lot of stuff
Incidently if a company as trustee does not have a right to be indemnified out of the trust assets then the director of this company can be personally liable becaause of a section of legislation in the corporation act -s297 from memory??
I am not even going to pretend to understand this, I will just remember, don't get sued
Yes. A trust needs a TFN and an ABN.
Can I apply mi self or should I get the accountants to?
thats up to you. Its not difficult to apply for an ABN
Do you really know what you need to do? This is not the time to skimp on fees.
I saw a client who was confident he knew what he was doing. He setup trust and saved a few bucks. Applied for an ABN for the Company Trustee (not needed) as well as the trust. No legal costs, no accountant costs...This was cheap for him. His contract had the Company ABN and didnt mention the trust.
A few months later he went to register for land tax and OSR refused and indicated the company was the land owner. They pointed to several issues:
- The contract was signed the day before the trust deed.
- The contact didnt mention a trust and used the company ABN
OSR questioned the conveyancer who said "I wasnt told about any trust"...Mr Cheapy wanted to keep it simple and keep costs down it seems.
So Mr Smarty decided that he would DIY to fix it and wrote to land titles and provided the trust deed and a resolution that created a trust over the company asset along with the signed trust deed. OSR asked for the duty payment. He was aghast. He argued he "was going to do the transaction" if there was no extra duty but wouldnt now...They didnt care. The deed was a declaration of trust in their view. It was done.
OSR assessed the duty on the deed - Should have been $500 but was now much much more based on a dutiable transfer of land. It took a good solicitor to unwind that mess at a cost of many many thousands.
I see clients regularly and setup a trust and the ABN application is correct and issued promptly with agent concessions for lodgement. No extra cost.
GST registration, Trustee Witholding, Domain regn, Bus Name use, Use of an ABN, Use of an ACN, tax Invoices, PAYG Withholding, FBT, Workers Comp, Insurances, Payroll Tax, Super etc are some of the issues a tax adviser may discuss when a new entity is formed.
A few months later he went to register for land tax and OSR refused and indicated the company was the land owner. They pointed to several issues:
- The contract was signed the day before the trust deed.
- The contact didnt mention a trust and used the company ABN
OSR questioned the conveyancer who said "I wasnt told about any trust"...Mr Cheapy wanted to keep it simple and keep costs down it seems.
So Mr Smarty decided that he would DIY to fix it and wrote to land titles and provided the trust deed and a resolution that created a trust over the company asset along with the signed trust deed. OSR asked for the duty payment. He was aghast. He argued he "was going to do the transaction" if there was no extra duty but wouldnt now...They didnt care. The deed was a declaration of trust in their view. It was done.
OSR assessed the duty on the deed - Should have been $500 but was now much much more based on a dutiable transfer of land. It took a good solicitor to unwind that mess at a cost of many many thousands.
I see clients regularly and setup a trust and the ABN application is correct and issued promptly with agent concessions for lodgement. No extra cost.
GST registration, Trustee Witholding, Domain regn, Bus Name use, Use of an ABN, Use of an ACN, tax Invoices, PAYG Withholding, FBT, Workers Comp, Insurances, Payroll Tax, Super etc are some of the issues a tax adviser may discuss when a new entity is formed.
Hi there, as someone who has recently gone down the path looking to setting up a D. Trust and am still talking to my accountant about this, I would take on board what you are hearing here. It isn't like filling out a simple tax return, when you don't have much to declare, or a DIY will, when you have little to will to someone, though you will need to consider a new will once the trust is in place.
The way I look at it is, yep, sure, I can change my car tyre myself, but reading a book on mechanics isn't going to help me fix the engine which is the most important part, and what makes the whole thing go! Heck, I have watched brick layers but wouldn't attempt to build a wall though a lot on here would
I had a 3 hr intensive meeting with the accountant, I still do not know enough to fully understand the various implications... I am having another meeting with him to clarify even more details. Overkill perhaps in some peoples eyes, but when you look at why you are setting up a trust and the value of what it contains, the advice you need to pay for to do that properly, is an investment in an investment.
The way I look at it is, yep, sure, I can change my car tyre myself, but reading a book on mechanics isn't going to help me fix the engine which is the most important part, and what makes the whole thing go! Heck, I have watched brick layers but wouldn't attempt to build a wall
though a lot on here would I had a 3 hr intensive meeting with the accountant, I still do not know enough to fully understand the various implications... I am having another meeting with him to clarify even more details. Overkill perhaps in some peoples eyes, but when you look at why you are setting up a trust and the value of what it contains, the advice you need to pay for to do that properly, is an investment in an investment.
Mitch - I encourage all clients to learn, read etc. When we meet I find they ask thoughtful questions and their time is productive and better value than a newb who doesnt know anything.
Yes, ALWAYS remember an investment is an investment. The tax issues go with it but should never drive it.
in QLD a DT comes with a issue that concerns stamp duty. QLD has an indirect duty rule which can impact on a DT. If you change the deed or some parties it can trigger transfer duty. Make sure your adviser knows what therse issues are and explains it to you too. Once armed with that the problem wont be triggered. Darryl at Hui law Brisbane can be a useful contact in property taxes. He knows what I refer to.
Yes, ALWAYS remember an investment is an investment. The tax issues go with it but should never drive it.
in QLD a DT comes with a issue that concerns stamp duty. QLD has an indirect duty rule which can impact on a DT. If you change the deed or some parties it can trigger transfer duty. Make sure your adviser knows what therse issues are and explains it to you too. Once armed with that the problem wont be triggered. Darryl at Hui law Brisbane can be a useful contact in property taxes. He knows what I refer to.
