IP Equity to PPOR - interest claimable??

[Terryw]

To be able to claim the expenses the trust would have to charge you market rents. As time goes by rents increase and there would come a time when the place would be positive geared. The profit would then come back to the unit holders as income and they would have to pay additional tax.

If this place is going to be your residence for a few years then it may be worthwhile doing. You may be able to claim the old place as your main residence and have it exempt from CGT if you had previously lived in it, so losing the CGT exemption on this may not be such a problem.

 

[lowie]

what are the rough costs to establishing a company and trust

 

[Terryw]

from about $500 to $20,000.

 

[Aaron_C]

What trust would cost $20,000 to setup??? One with a trust deed made of gold?

 

[Terryw]

I know a solicitor who had a client who used a barrister to draft a deed and it cost him $20k

 

[Aaron_C]

lol...a fool and his money are easily parted.

 

[lowie]

The company should really only have one director to reduce risk and the shareholder should be a discretionary trust ideally, but could be you and wife.

Hi Terry,

just wondering why it would be better to have the shareholder as a discretionary trust as well??

and is it difficult to get a loan when you are looking to buy through a trust/company structure?

thanks

 

[Terryw]

Hi Terry,

just wondering why it would be better to have the shareholder as a discretionary trust as well??

thanks

Hi Lowie

Shares are property and could fall into the hands of your creditors if you were to go bankrupt. Property held as trustee for someone else is safe(r) (depending how it is all set up etc).

Imagine if you went bankrupt and your creditor got control of your trustee company. They could just distribute all the trust assets to themselves, after they have made themselves a beneficiary. The appointor could sack the trust though, but if they were to get in before being sacked it could be possible.

 

[lowie]

ahh i c.

In terms of getting a loan then and paying off the loan.

correct me if i am wrong...Under the unit trust structure, rent would be then paid to the trust...the outstanding repayments would also be paid by myself my mrs..all expenses, deductions, depreciation etc. would therefore stay within the trust.

and normally would the loan be taken out in mine and my mrs name? or in the trust's name or what would that be?

 

[Terryw]

If you buy the property in the trust the the 'trust' would be owner and get to claim and pay all expenses.

If the trust takes out the loan to buy the property it can claim the interest, but you cannot.

If you take out a loan to buy units in the trust then you could claim the interest against your personal income.

 

[lowie]

based on TD 2009/17: http://law.ato.gov.au/atolaw/view.htm?locid='TXD/TD200917/NAT/ATO'&PiT=99991231235958

So the structure would be something like:
Unit Trust -> x pty ltd as trustee -> director/shareholder = discretionary trust - me and mrs as trustees

but if the trust is taking out the loan and claiming everything, is there anyway that this kind of structure can reduce my personal income?

 

[Terryw]

based on TD 2009/17: http://law.ato.gov.au/atolaw/view.htm?locid='TXD/TD200917/NAT/ATO'&PiT=99991231235958

So the structure would be something like:
Unit Trust -> x pty ltd as trustee -> director/shareholder = discretionary trust - me and mrs as trustees

but if the trust is taking out the loan and claiming everything, is there anyway that this kind of structure can reduce my personal income?

The trust wouldn't necessarily be claiming everything. You could be claiming the interest against your personal income - but you would be receiving income from the trust so as long as the interest exceeds the income you should be reducing personal income tax.

 

[Terryw]

That TD wouldn't apply to this situation either.

 

[Terryw]

Try this one
Taxation Ruling
TR 2002/18

Income tax: home loan unit trust arrangement
http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR200218/NAT/ATO/00001

Make sure you get advice as the ATO can deny deductibility if the dominant purpose is to save tax.