Land Tax and Structuring of investment Properties

[Fudge]

Hi Guys,

I currently have a company, say XXX Pty Ltd. I then have a discretionary trust which has a number of properties in them.

To increase asset protection and minimise land tax on the company, I have been informed I need to make up another discretionary trust.

Will I keep 'exclusivity' in the properties if I have another discretionary trust 'inside' the XXXPty Ltd company, or do I need to start another entirely new company. (In exlusivity, I mean in terms of asset protection, they will be untraceable.....or well harder to trace anyway)

I.e. I will use the following example, as after reading what I have written so far, may sound confusing.....or maybe since I don't understand it.....I am confused. LOL


1. XXX Pty Ltd (ATF) The Fudge Family Trust
and can I then add another discrtionary trust like..........
XXX Pty Ltd (ATF) The Chili Family Trust (i.e. same company....different trust)

or do I need new company......
2. XXX Pty Ltd (ATF) The Fudge Family Trust
and
YYY Pty Ltd (ATF) The Chili Family Trust (i.e. different company...different trust)

Looking forward to clarifying my mixed up mind.

Thanks in advance.

 

[handyandy]

Hi Guys,

I currently have a company, say XXX Pty Ltd. I then have a discretionary trust which has a number of properties in them.

To increase asset protection and minimise land tax on the company, I have been informed I need to make up another discretionary trust.

Will I keep 'exclusivity' in the properties if I have another discretionary trust 'inside' the XXXPty Ltd company, or do I need to start another entirely new company. (In exlusivity, I mean in terms of asset protection, they will be untraceable.....or well harder to trace anyway)

Yes the new trust will have no link to the new trust even where the same trustee

I.e. I will use the following example, as after reading what I have written so far, may sound confusing.....or maybe since I don't understand it.....I am confused. LOL


1. XXX Pty Ltd (ATF) The Fudge Family Trust
and can I then add another discrtionary trust like..........
XXX Pty Ltd (ATF) The Chili Family Trust (i.e. same company....different trust)

You can have multiple trusts with the same company trustee the only problem arises if you need to collapse the trustee company as you would need to alter all the trustee details on the trusts that share that trustee. I have had to do this and it proved a right pain. So if there is a likelyhood of the trustee getting sued then don't use this trustee for any other of your structures.

or do I need new company......
2. XXX Pty Ltd (ATF) The Fudge Family Trust
and
YYY Pty Ltd (ATF) The Chili Family Trust (i.e. different company...different trust)

This is a better approach as it leaves each entity structure distinct and pure. The problem is the extra management cost and time.


Looking forward to clarifying my mixed up mind.

Thanks in advance.

For trusts that hold property only I would think you could have a number of trusts with the same trustee as per your first statement. The idea is that you then manage the land tax liability to stay under the threshold for that package of properties.

With enough properties in the structure I think set up a new trustee company that will manage the next package of properties.

Cheers

 

[Fudge]

Thanks for the quick response Handy,

I think I will use complete new structures, as this will keep everything seperate.

I think I am on the right wavelength now, so can tackle my accountant, and see the diffence in costs for having new structure.

Cheers,

F

 

[Dazz]

Look at the pounds, not pennies

Hi Fudge,


It might cost you 2K to set up a totally separate legal entity to hold the new acquisition, and I dunno, maybe 1K per year to hold it......but if you are deadly serious in the game we play, then to assist in any way to protect your position from say a 3 or 4M threat, you'll think it was a wise move.

 

[Fudge]

Hi Fudge,


It might cost you 2K to set up a totally separate legal entity to hold the new acquisition, and I dunno, maybe 1K per year to hold it......but if you are deadly serious in the game we play, then to assist in any way to protect your position from say a 3 or 4M threat, you'll think it was a wise move.

Thanks TPFKAD,

I have about 7 in this particular structure, which involves a couple I will be stratering (jees...how do you spell that...it looks wrong anyway)soon.

Have got my eyes on an up and coming set of units, and want to sort out the 'behind the scenes stuff' first, so I can jump on board when the time is right.

Unfortunatly, it does sound quite expensive to set up, but the good thing about it is that it is always tax deductable. Also the fact of ensuring greater asset protection across the portfolio. (I will find out actual costs when I speak with my accountant)

Out of curiosity, how many investment properties do you guys have in a structure. As said above, I have about 7....this will effect my land tax in Qld, so, hence, looking at setting another up. My accountant seems to suggest that she has one for each property.....Now I can see that becoming very expensive if she has a large portfolio.

Cheers,

F

 

[Jonathon]

Unfortunatly, it does sound quite expensive to set up, but the good thing about it is that it is always tax deductable. Also the fact of ensuring greater asset protection across the portfolio. (I will find out actual costs when I speak with my accountant)

I'd speak to your accountant about the tax deductibility of setting up trusts - it may be, but usually company/trust formation costs are not tax deductible...although if I've got this wrong please correct me.

 

[Fudge]

I'd speak to your accountant about the tax deductibility of setting up trusts - it may be, but usually company/trust formation costs are not tax deductible...although if I've got this wrong please correct me.

Hi Jonathon,

With my first company and discretionary trust, this was all tax deductable when I did it a couple of years ago, as well as all the advice of my accountant at the time, so I don't see why not it wouldn't be the same.......unless they changed the law...

The other half is going to accountant tomorrow, so will look at costs involved.

Cheers

F

 

[Jonathon]

Indeed it would seem that it is deductible, per the ATO, but over 5 years, not immediately.

Cheers
Jonathon

 

[Terryw]

Hi Fudge

Basically you will be setting up a trust anyway, so it is only the extra company costs which you will be up for. a company costs about $400 to set up now and $210 pa in ASIC fees, plus you will need to lodge a tax return each year - which should be a nil return anyway - so all up it should only cost you a little bit extra for the added flexibility. ie formation costs, nil tax return and annual asic fees.

 

[klublok]

To increase asset protection and minimise land tax on the company, I have been informed I need to make up another discretionary trust.

I am not sure how setting up another discretionary trust and/or another company acting as trustee would increase asset protection.

There have been recent court cases where the court had "attacked" the assets inside the trust. In essence they have gone down the "alter ego" argument made famous by the family lawyers to access trust assets.

I assume that you will be the shareholders of the trustee company? And that you will be (one of) the appointor(s) of the trust? In these instances, the shares in the trustee company are your assets which can be taken by the trustee in bankruptcy. This means that they would be able to take control of the trust.

Although you as the appointor can remove the trustee, this would add to the the argument that the trust is not a bona fide trust, especially if you are the main decision maker and that most of the distributions go to you.

 

[Fudge]

Thanks Terry,

It doesn't sound like much doeas it.....good.

klublock,

One question.....if the courts and the solicitors can get to the assets in my trust, then why are they supposedly a 'must' for asset protection.

Why bother going to the trouble of sorting it all out, if they can get there hands on it anyway......apart from possible tax advantages.

These trusts (discretionary), from what I believe, are a way of structuring your assets to mitigate from these things happening in the first place (i.e. courts and solicitors)

A bit perplexed...

F

 

[Terryw]

To increase asset protection and minimise land tax on the company, I have been informed I need to make up another discretionary trust.

I am not sure how setting up another discretionary trust and/or another company acting as trustee would increase asset protection.

There have been recent court cases where the court had "attacked" the assets inside the trust. In essence they have gone down the "alter ego" argument made famous by the family lawyers to access trust assets.

I assume that you will be the shareholders of the trustee company? And that you will be (one of) the appointor(s) of the trust? In these instances, the shares in the trustee company are your assets which can be taken by the trustee in bankruptcy. This means that they would be able to take control of the trust.

Although you as the appointor can remove the trustee, this would add to the the argument that the trust is not a bona fide trust, especially if you are the main decision maker and that most of the distributions go to you.

There has been one or two cases where the alter ego argument was effective. I wrote a post here somewhere a few months ago on why I think that won't apply in the majority of cases.

From memory, the cases where it was successful involved ASIC investigations into corporations act offences - which wouldn't usually apply to the majority of cases. They involved the restraining of assets held in trust. I am not sure if these assets were ever gotten at. One case was the Richstar case - forget the specific number as there are about 20 of them.

Subsequent to this case there were a few cases where the alter ego argument was used and these were unsuccessful. One was a NSW Supreme Court case involving a trust set up by a Doctor where the trust was attacked - unsuccessfully.

I still think discretionary trusts are the best asset protection vehicle out there.

 

[klublok]

Thanks Terry,

It doesn't sound like much doeas it.....good.

klublock,

One question.....if the courts and the solicitors can get to the assets in my trust, then why are they supposedly a 'must' for asset protection.

Why bother going to the trouble of sorting it all out, if they can get there hands on it anyway......apart from possible tax advantages.

These trusts (discretionary), from what I believe, are a way of structuring your assets to mitigate from these things happening in the first place (i.e. courts and solicitors)

A bit perplexed...

F

There is no iron clad asset protection - no formula as such. It is not a case of you do XXX and then your assets are protected. Asset protection is all about throwing up as many "hurdles" as possible so that whoever is trying to get at your assets will need to jump a whole lot of requirements before they can get at what you have. Hopefully if it is not too significant of a claim they might go after someone "easier".

So putting your assets in a trust is a hurdle. Structuring your trustees and appointors a certain way is another hurdle. Having an independent trustee on board is a hurdle. Making your distributions to your beneficiaries (other than yourself) is a hurdle.

It all depends on what type of attacks you are trying to prevent. If you are trying to prevent bankruptcy, then yes discretionary trusts are still pretty effective and Terryw is right.

However protecting against family breakdowns is a totally different ballgame.