Discretionary Trust vs Direct Ownership

Here's the scenario:

High income earner and low income spouse wish to purchase IP in Western Sydney. Price around $350k, rents for $300pw, granny flat addition possible later on.
Hopefully the property will start close to cashflow positive and will be cashflow positive in future. The loan may be paid down quickly. Unless interest rates rise there will not be a huge tax refund from negative gearing.

What is the best ownership structure for this IP:
1) Family discretionary trust (need to create)
2) Owned by high income earner
3) Owned by low income earner
4) Shared ownership
 
5. Maybe none of the above ??

Consider this:
1. A SMSF can NEVER buy any or all of the property...Not tomorrow, not in 20 years.
2. All your propsed options are FIXED. Would you be interested in a method that allows the ownership to be changed...For example today its 100% High income earner...In three years if its +geared shift ownership to wife. No stamp duty. The higher the incomes the more probable that "fixed" ownership is a mistake. Every client I have met wished they didnt structure ownership the way they did. Things change. Things happen.
3. Land tax threshold for a DT in NSW is zero. Land tax of $6K more than other options will occur. Every year.

etc.

A fixed unit trust offers these options + more.
 
Here's the scenario:

High income earner and low income spouse wish to purchase IP in Western Sydney. Price around $350k, rents for $300pw, granny flat addition possible later on.
Hopefully the property will start close to cashflow positive and will be cashflow positive in future. The loan may be paid down quickly. Unless interest rates rise there will not be a huge tax refund from negative gearing.

What is the best ownership structure for this IP:
1) Family discretionary trust (need to create)
2) Owned by high income earner
3) Owned by low income earner
4) Shared ownership

Impossible to say without doing an analysis of all the issues.

A discretionary trust wil mean land tax. This may be an issue for most, but if you alread each or jointly own other properties you may be paying land tax anyway. Land tax is just one out of about 10 issues to consider.
 
Here's the scenario:

High income earner and low income spouse wish to purchase IP in Western Sydney. Price around $350k, rents for $300pw, granny flat addition possible later on.
Hopefully the property will start close to cashflow positive and will be cashflow positive in future. The loan may be paid down quickly. Unless interest rates rise there will not be a huge tax refund from negative gearing.

What is the best ownership structure for this IP:
1) Family discretionary trust (need to create)
2) Owned by high income earner
3) Owned by low income earner
4) Shared ownership

I think you need to do a lot more research into approprite properties before buying.

Hoping a property will be cashflow positive is not a strategy.
BTW your property will NOT be CF+ or even close.
Paying down a loan quickly is also not a good option. Read up on Offset accounts.

What is your long term plan, regarding this property and others. That will make a difference to what entity you buy in.
 
2. All your propsed options are FIXED. Would you be interested in a method that allows the ownership to be changed...For example today its 100% High income earner...In three years if its +geared shift ownership to wife. No stamp duty. The higher the incomes the more probable that "fixed" ownership is a mistake. Every client I have met wished they didnt structure ownership the way they did. Things change. Things happen.
3. Land tax threshold for a DT in NSW is zero. Land tax of $6K more than other options will occur. Every year.

etc.

A fixed unit trust offers these options + more.

Does NSW give a land tax threshold for fixed unit trusts?

Also, while a fixed unit trust allows change of % of ownership (by changing ownership of the units), and there is no stamp duty, aren't these CG events, and the unit holder has to pay CG if they sell units based on the underlying market value of the property?
 
Does NSW give a land tax threshold for fixed unit trusts?

Also, while a fixed unit trust allows change of % of ownership (by changing ownership of the units), and there is no stamp duty, aren't these CG events, and the unit holder has to pay CG if they sell units based on the underlying market value of the property?

in NSW the unit holders are considered the owners of the property for land tax purposes (for qualifying fixed trusts).

Transfer of units in NSW results in 0.6% stamp duty, but a way around this would be to redeem and reissue. Both would be a CGT event.
 
Thanks for the feedback so far.
The expectation is to keep the property for a long time. The aim is to eventually own an asset that generates income.

Initially the property will not be CF+. Anyone care to roughly guess total outgoings with a loan of 90% of $350 and normal expenses?

No other IP's and renting.
 
Thanks for the feedback so far.
The expectation is to keep the property for a long time. The aim is to eventually own an asset that generates income.

Initially the property will not be CF+. Anyone care to roughly guess total outgoings with a loan of 90% of $350 and normal expenses?

No other IP's and renting.

Rent = 15,600 (300x52), Interest = 5% x 315k = 15,750.

costs approx 1.5% of market value = 5,250(estimated, includes agents fees, vacancies, rates, insurance, repairs)

Assume depreciation = 0

Tax loss 5,400.

After tax (assuming 'high income earner' means >185k) = 53.5 x 5,400= 2,889 negative.

The property is unlikely to be tax positive for a couple of years (though the tax loss isn't that high either). If you assume, say, 10% increases in rent a year, it'll take 3 years, assuming costs don't increase. Does the relatively small amount of loss justify using the fixed trust to facilitate selling the effective ownership to the low income earner, given that you'll incur capital gains?
 
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