Hi there,
I have one fully owned IP (in my name) and, with my partner am about to buy 2 more IPs (one for development) – both for growth. These will both be funded from cash and a LOC on my current IP.
While my partner and I are aussie citizens, we've lived overseas for the past couple of years, and are non-resident for tax purposes in oz. We’re back now to setup our affairs and will be heading off again for a few years, after which we’ll settle back in back in oz for good.
My question regards the most appropriate asset structure to buy the new properties in: I’m considering setting up an HDT (with corporate trustee) to purchase the IPs, and take a loan out in both our names, for the units. My understanding is:
- the trust then earns rental income, less running/maintenance/depreciation expenses, and distributes the net income to us as unit holders.
- we deduct the loan interest payments, which (at the start) result in a loss.
- tax losses carry forward each year, so when we return (we’ll both be on similar incomes) we can claim these back.
- once the properties are positively geared, the discretionary element kicks in, and income can be distributed from the unit holders to their beneficiaries, in the most tax effective manner.
Is my understanding of the above concepts correct?
I understand that HDTs are different. But is it correct that, for the above to work, the HDT must define both income and capital units? For example, the cleardocs HDT (http://www.cleardocs.com/clearlaw/trusts/clearlaw-hybrid-trust) seems to define only ordinary units, and states that “Income on borrowings to finance acquisition of units NOT deductible… as unitholder in the hybrid trust has no more than an ‘expectancy’ (and not a right) to receive income from the trust.” Whereas the lawcentral HDT (http://www.lawcentral.com.au/CreateDoc/createlink.asp?docId=201) defines ‘distinct income units’ and states that “unit holders can claim a deduction for the interest incurred on the cost of their units”.
Thanks for reading such a long post!
WM
I have one fully owned IP (in my name) and, with my partner am about to buy 2 more IPs (one for development) – both for growth. These will both be funded from cash and a LOC on my current IP.
While my partner and I are aussie citizens, we've lived overseas for the past couple of years, and are non-resident for tax purposes in oz. We’re back now to setup our affairs and will be heading off again for a few years, after which we’ll settle back in back in oz for good.
My question regards the most appropriate asset structure to buy the new properties in: I’m considering setting up an HDT (with corporate trustee) to purchase the IPs, and take a loan out in both our names, for the units. My understanding is:
- the trust then earns rental income, less running/maintenance/depreciation expenses, and distributes the net income to us as unit holders.
- we deduct the loan interest payments, which (at the start) result in a loss.
- tax losses carry forward each year, so when we return (we’ll both be on similar incomes) we can claim these back.
- once the properties are positively geared, the discretionary element kicks in, and income can be distributed from the unit holders to their beneficiaries, in the most tax effective manner.
Is my understanding of the above concepts correct?
I understand that HDTs are different. But is it correct that, for the above to work, the HDT must define both income and capital units? For example, the cleardocs HDT (http://www.cleardocs.com/clearlaw/trusts/clearlaw-hybrid-trust) seems to define only ordinary units, and states that “Income on borrowings to finance acquisition of units NOT deductible… as unitholder in the hybrid trust has no more than an ‘expectancy’ (and not a right) to receive income from the trust.” Whereas the lawcentral HDT (http://www.lawcentral.com.au/CreateDoc/createlink.asp?docId=201) defines ‘distinct income units’ and states that “unit holders can claim a deduction for the interest incurred on the cost of their units”.
Thanks for reading such a long post!
WM
