legit?

[adrianjt]

My wife (and or I) or our family trust are about to purchase a block of land that (one of the aforementioned parties) will develop, resulting in an income producing investment property.

We have the funds to buy it outright but we would ideally like to generate interest by a) i (low income) lend to Missus (higher income) to buy property in her name b) we or one of us? lend it to the trust, the trust accrues a debt to (one of?) us which is tax deductible. c) We gift it to the trust who lends it back...

We sorta still owe money on home, ie the debt is fully offset . 4) Can we apportion our (offset) home loan & say "that bit (of the loan) is the land & assoc development costs", even tho it is offset?

I am pretty sure that the trustee is liable for any potential land tax, is that correct? Also in the event of the sale of the land & CGT (and that we buy it with the trust), can the gain be distributed to individuals who are able to realise the 50% deduction?

I greatly appreciate all helpful comments, cheers!

 

[Terry_w]

Yes, family members can borrow and lend money to or from each other or to a trust. There are many tax and legal aspects to consider - Part IVA for instance on the tax side, and death for instance on the legal side. See a lawyer.

You mentioned development so probably no CGT on this, but income tax and therefore no CGT discount.

Land tax will depend on the state, type of trust and the value.

 

[Paul@PFI]

Hmmm. Terry's right but in many instances it all falls over cause someone takes a shortcut or misses something. Or the loan agreement and the conduct of the loan arent on 3rd party terms.. Let me quote you "we gift it to trust"....You can't gift $ to a trust then it lends / distributes it back to someone else to change tax outcomes especially where one taxpayer on high income v's other. Its likely a scheme. ATO would disallow 100% interest but still assess the income earner.

My advice is get advice. Draw it on paper showing the 1. Steps taken and 2. Movements of $ , property etc. Blended loans arent always sensible either.

Trusts can get smashed on land tax or can enjoy similiar concessions to individuals with thresholds. Depends on state and also type of trust, prop value etc. All part of the advice.

Q : Have you also considered a hybrid trust that complies with the ATO rulings (TR 2009/17) ?? For example:
A Hybrid Disc Trust that issues units to represent the loan funds. Pays say 8% interest in priority to the lender - unitholder. Then the trust distibutes remaining income to all eligible beneficiaries in a discretionary manner. A good adviser will consider all options is what I'm trying to demonstrate.

 

[adrianjt]

Greatly appreciate for your thoughts. After looking at various options the current plan is to gift (after tax savings) money to the trust which then lends it to us jointly on commercial basis (to buy the property) but will only require payment of interest &/or capital a) property sold b) whenever (you have a high income and want/need? to reduce it).

Is that above board... it sorta sounds too easy? thanks again
adrian

 

[Terry_w]

Is that above board... it sorta sounds too easy? thanks again
adrian

Depends a few things. You should seek legal advice before you give away your money for starters. And then tax advice on the deductibility of interest.

 

[adrianjt]

Thanks Terry, yes, I will have a CPA clarify before I gift the funds. I appreciate the pointers, cheers Adrian

 

[Terry_w]

Thanks Terry, yes, I will have a CPA clarify before I gift the funds. I appreciate the pointers, cheers Adrian

You should also see a lawyer. Many legal issues with giving away money.