Discretionary Trusts - General Discussion

[bicko]

Now a couple of days ago,
I was chatting to my Brother in laws father, in his seventies, very successful bussiness man, assets in Hong Kong, friends with Gerald Hervey Frank Lowy, race horses trained by Clarry Connors etc.

Any ways the topic of the conversation was on trusts. Now he is from the old school and was under the impression that tax benefits such as the 50% CG discount and share Imutation tax credits were not available when operating through a trust.
After reading Trust Magic and reading numerous posts and talking to accountants and even a Tax Lawyer, I understand that these benefits are in fact available through a Disc Trust.

If this is the case, was there a previous law stating that no personal tax benefits were available to the individual through a trust?

Now he (rich dad) also added that the most advantageous vehicle to ivest through is in your personal name.......when you are starting out. He said to try and exhaust all the possible benefits of investing in own name first. The big one being your PPOR(a tax free haven).

On this forum I have heard of people renting their PPOR back from the trust, furniture aswell, does anyone care to comment on the ins and outs of this strategy, as in the financial benefits.

So when people talk about the tax benefits of operating through a trust, all of these deductions that you can claim can only be offset against the profit/income earnt in the trust. Mind you I can see that at least all of these tax deductions in the early years could offset the tax paid on future profits for quite some time.

I guess where our strategy is headed is towards self employment through our family trust, thus kicking our PAYG jobs into touch.

A question for those Appointors out there, when you started your trusts, were they operating at a loss for a substantial amount of time, or did some of you transfer assets in. Or did some of you have a successful business to kickstart your Trust?

Cheers

Bicko

 

[NigelW]

Now a couple of days ago,
I was chatting to my Brother in laws father, in his seventies, very successful bussiness man, assets in Hong Kong, friends with Gerald Hervey Frank Lowy, race horses trained by Clarry Connors etc.

Any ways the topic of the conversation was on trusts. Now he is from the old school and was under the impression that tax benefits such as the 50% CG discount and share Imutation tax credits were not available when operating through a trust.
After reading Trust Magic and reading numerous posts and talking to accountants and even a Tax Lawyer, I understand that these benefits are in fact available through a Disc Trust.

If this is the case, was there a previous law stating that no personal tax benefits were available to the individual through a trust?

Now he (rich dad) also added that the most advantageous vehicle to ivest through is in your personal name.......when you are starting out. He said to try and exhaust all the possible benefits of investing in own name first. The big one being your PPOR(a tax free haven).

On this forum I have heard of people renting their PPOR back from the trust, furniture aswell, does anyone care to comment on the ins and outs of this strategy, as in the financial benefits.

So when people talk about the tax benefits of operating through a trust, all of these deductions that you can claim can only be offset against the profit/income earnt in the trust. Mind you I can see that at least all of these tax deductions in the early years could offset the tax paid on future profits for quite some time.

I guess where our strategy is headed is towards self employment through our family trust, thus kicking our PAYG jobs into touch.

A question for those Appointors out there, when you started your trusts, were they operating at a loss for a substantial amount of time, or did some of you transfer assets in. Or did some of you have a successful business to kickstart your Trust?

Cheers

Bicko

In the long run, IMHO you will always be better off utilising a trust structure. However, if you/spouse are in a low risk job then the CGT free status of main residence is a hard thing to give up. Also, the quarantining of losses in a trust is hard to swallow early on if you're negatively geared or otherwise have substantial investment deductions. To circumvent this latter problem, hybrid trusts have developed. They don't get you all the deductions, rather you get to claim the interest (which is usually your biggest investment expense anyway) against your assessable income from other sources. This benefit with Hybrid trusts is not, however, without risk as has I think by now been explored at length in some other threads.

If your properties or portfolio as a whole is cashflow +ve and you've got one or more family members on lower marginal tax rates then the income streaming flexibility which a discretionary trust gives you can be of great benefit in saving some tax.

Another benefit which interposing another entity, namely the corporate trustee, can have is that you can more easily justify paying family members to provide services to the trust and convert what might be arguably viewed as personal expenses into business/investment expenses - see Dale's 1st Tax Battles for some great ideas there...

As far as I'm aware, trusts have always been "pass through" entities for tax purposes ie receipts retain their character ie CG to T'ee is CG when distributed. I think what your "rich dad" may have been referring to is the quarantining of losses as discussed above.

You've got to take a long term view of things. You can certainly make your fortune in property without using trusts, but you need to beware that you aren't building a house/s of cards that can be brought down by just one careless move...

Cheers
N.