How to best structure joint purchase of IP?

[meelk]

Hi everyone

My husband and I are are embarking on a joint venture with another couple. We have a contract on a house on a double block. We have set up a unit trust for the JV.

Our broker has applied for finance with all four of us on one mortgage. However, our accountant has advised that to claim the interest on the mortgage as a tax deduction this loan would have to be 'split' so that each couple has 50% of the loan while still remaining responsible for the entire loan if the other couple defaults. Therefore, each couple receives their own statement for their 'portion' of the loan, However, this also entails two establishment fees.

Does this sound right? Are there any other ideas about how to best set this up to maximise tax benefits?

Could we have one loan and if the ATO asks questions we can prove that each couple was paying 50% of the interest by showing bank statements?

With thanks

Megan

 

[josko]

Hi meelk,

Split the Loan. Your accountant has given you his advice and it sounds to me as if you don't want to take it because you are worried about an establishment fee.

The establishment fees are nothing compared to the headache it may cause you to travel another path.


Regards JO

 

[MattR]

Agreed...establishment fee is the least of your worries.

Question: who has the loan, the Unit Trust or the Unit Holders?

 

[meelk]

Thanks for the advice, your are right, two establishment fees is the least of my worries!

The way it is structured now, the unit holders have the loan and the unit trust has the asset. This was explained to me to ensure that the interest is tax deductible and the assest is protected.

Megan

 

[Terryw]

Sorry to be Alarmist, but it sounds very dangerous to have 4 people on the loan. JVs are notoriously dangerous - one of my friends just lost $300,000 on a deal.

Also unit trusts offer no asset protection as the units are considered property.

 

[Qlds007]

I am with Terry i cant remember a client that carried a JV without some sort of issue along the way.

There are safer alternatives to a Unit Trust structure which are worth exploring.

Why do you want to expose all 4 of you to potential litigiation of something goes wrong.

 

[Mry]

It seems that it is being described a Joint Venture when it is actually a Unit Trust. However, we can't be sure without reviewing the paper work.

Structuring advice is best left to your accountant. There are too many unknowns that may have to be considered to find a perfect fit (eg taxable income, asset protection, future earnings, etc).

And as everyone else said, one loan for all 4 people is wrong. You should talk to the bank about getting 2 loans. They may start to cry about someone having to go second mortgage but it will protect you in the long run.