Help. Asset protection advice by tomorrow

Let me think this through.
Hubby is borrowing 100% of purchase price to borrow what? To buy shares.
The company then lends the money to a trust which pays cash to purchase a property.
The shares would be income producing because?

Also to borrow the money what is the security? It would have to be the property, so you would have the property owned by trustee Z but want the loan in the name of Mr Hubby. This will cause problems like the hybrid trusts. Could be done though.
?

Thanks you for your thoughts everyone. Lots to think about

I am looking at all things mentioned, but just on these two points

I believe that the expectation of income is because the company is a beneficiary of the trust. It would get an income after a number of years. Probably the plan is once I get taxed at >30%. I think I heard once though that dividends get taxed twice. Once on way out and again as income for shareholder?

I'm a bit unsure about the second point above. Isn't that always the case when buying in a trust?
 
Security for loan would be the property we are to buy.

But the trust is buying the house, is it not? Hubby is buying shares in a company that then "lends" the funds to the trust.

So from the bank's prospective, hubby cannot offer the house as security because he has no direct connection to it. There is a company and a trust in the middle.

Do I have this right?
 
Yes, but isn't that the case if we were to just buy under a trust regardless? The whole idea is to separate you and your assets
 
Thanks you for your thoughts everyone. Lots to think about

I am looking at all things mentioned, but just on these two points

I believe that the expectation of income is because the company is a beneficiary of the trust. It would get an income after a number of years. Probably the plan is once I get taxed at >30%. I think I heard once though that dividends get taxed twice. Once on way out and again as income for shareholder?

I'm a bit unsure about the second point above. Isn't that always the case when buying in a trust?

A beneficiary under a discretionary trust has no guarantee of ever receiving income from that trust - even if you control the trust. This is because the discretion is with the trustee.

Therefore interest on money borrowed and settled on the trust cannot be claimed by the borrower because there is no guarantee of return.

This would be different if the trust was a unit trust because the trustee has no discretion and there would be fixed entitlements.
 
A beneficiary under a discretionary trust has no guarantee of ever receiving income from that trust - even if you control the trust. This is because the discretion is with the trustee.

Therefore interest on money borrowed and settled on the trust cannot be claimed by the borrower because there is no guarantee of return.

This would be different if the trust was a unit trust because the trustee has no discretion and there would be fixed entitlements.

No guarantee but reasonable expectation if it taxes at 30%. Just going to go check that out now
 
No guarantee but reasonable expectation if it taxes at 30%. Just going to go check that out now

Trusts are not taxed at 30%. If the trustee does not distribute then the tax will be more like 46%.

There is still not expectation that any particular person will receive any money (if there was then no asset protection). There may be an expectation that the trustee would make a distribution but there would be 100s of potential beneficiaries.

The expectation is not enough to be able to claim the interest.
 
No I meant if company is taxed at 30%. But just did quick check on dividends taxation. As DH is in highest tax bracket, dividends would be taxed overall at highest tax margin. (for him personally less the amount company has already paid, but overall for us still the same). That would mean no particular tax advantage to put it to any particular beneficiary once I reach highest tax bracket too. Sigh
 
No I meant if company is taxed at 30%. But just did quick check on dividends taxation. As DH is in highest tax bracket, dividends would be taxed overall at highest tax margin. (for him personally less the amount company has already paid, but overall for us still the same). That would mean no particular tax advantage to put it to any particular beneficiary once I reach highest tax bracket too. Sigh

I would ask the accountant for an example of how it all works with some figures. There must be more too it.
 
Noone has discussed Division 7a. If a company makes a loan to a shareholder or an associate of a shareholder (trust will be an associate of hubby shareholder) then Division 7a applies to the loan.

ohh what a nasty mess this is turning out to be. This is possibly the worst structure I have ever seen from many different angles.
 
From the ATO:
http://www.ato.gov.au/businesses/content.aspx?doc=/content/40223.htm


Division 7A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) is an integrity measure aimed at preventing private companies from making tax-free distributions of profits to shareholders (or their associates). In particular, advances, loans and other payments or credits to shareholders (or their associates) are, unless they come within specified exclusions, treated as assessable dividends to the extent that the private company has a distributable surplus.

The dividend is taken to be paid out of the private company's profits to the recipient as a shareholder in the private company. However, no dividend is taken to be paid for withholding tax purposes.
 
correct vaughan. the trust will be an associated of a shareholder. i.e. the trust is an associate of hubby so Division 7a needs to be considered.

The low interest loan or no interest loan may be a Division 7a issue – it depends upon whether there is a distributable surplus in the private company at the time the loan, or further loans, are made.

also if the funds invested in the company cannot generate a return greater than the interest rate being paid out by the husband the ATO would likely try to disallow the extra interest amount – there is some precedent for this on the basis of the decision in a case called Fletcher.
 
Agreed Aaron. Trusts are like a McLaren. Powerful but if you dont treat them with respect and understand how to drive one you can end up in a right royal mess. If your adviser doesn't understand them either even worse as it is the blind leading the blind.
 
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