POPR owned by trust

[h8dk97]

I'm just curious if anybody else had this idea or has actually done it - trust buys an investment property and trust beneficiaries rent this property paying the market rate rental. The trust would then offset the interest it has to pay to the bank against the losses (negative gearing). Is it possible, is it a good idea at all, are there any drawbacks except CGT on sale?

Thanks in advance.

 

[DaleGG]

Hi

Yes, I do it myself and have seen it done many times.

One of the advantages is that the trust can provide a fully furnished home for you to rent and in which case the furniture is tax deductible as well. Even if depreciated.

Another excellent advantage is the ability to refinance the property and use the funds for whatever purposes you like and still claim a tax deduction for the interest, which, an individual cannot do.

CGT will not apply on the sale of this PPOR if the home is subject to a long term lease.

There are some significant advantages and strongly suggest that you talk to your accountant about the possibilities.

Have fun

Dale

 

[h8dk97]

Thank you Dale,

This sounds almost too good to be true! and I definitely like to find out more about this.
Could you tell me, how long the lease term should be for you not to pay CGT on sale? and could you recommend some reading on trusts for a beginner.
Thanks again.

 

[kheaver]

Originally posted by DaleGG

One of the advantages is that the trust can provide a fully furnished home for you to rent and in which case the furniture is tax deductible as well. Even if depreciated.

Shaking head in bewilderment,

Hasn't the ATO put an end to this in
Taxation ruling IT2167 ,
Taxpayer alert TA2001/1,

I've been angling for this for a while but can't find a way through.
Could there be light at the end of the tunnel, even if the ATO has got its hand on the light switch.

Kim

 

[DaleGG]

Originally posted by h8dk97
Thank you Dale,

This sounds almost too good to be true! and I definitely like to find out more about this.
Could you tell me, how long the lease term should be for you not to pay CGT on sale? and could you recommend some reading on trusts for a beginner.
Thanks again.

Hi

There is very little useful information available on trusts that you can read. I don't have all the information in front of me just now (I'm not in my office) and so I'll confirm the length of time needed on the lease later.

Dale

 

[DaleGG]

Originally posted by kheaver
Shaking head in bewilderment,

Hasn't the ATO put an end to this in
Taxation ruling IT2167 ,
Taxpayer alert TA2001/1,

I've been angling for this for a while but can't find a way through.
Could there be light at the end of the tunnel, even if the ATO has got its hand on the light switch.

Kim

Hi Kim

The Tax alert deals with unit trusts and not discretionary trusts and this is quite a distinction that makes quite a difference. A number of tax experts consider the tax office view to be incorrect anyway . . .

Furthermore, if there are commercial reasons for doing so (such as in my case for asset protection) then the tax office are even less likely to win any case against using this technique.

have fun

Dale

 

[paulzag]

shhhh Dale

You're telling secrets out of school again

For those not in on it...

Never, never, never structure something for tax purposes. Always have a great business case for it.

Regards

Paul Zag
Dreamspinner

 

[brains]

Paul

Its no great secret, anyone in business knows or should have
been informed by their accountant that business decisions should have a commercial basis as opposed to a tax avoidance (minimisation) basis.


**See my post on pre paying interest on here somewhere**

 

[Owen]

Hi Dale,

I just printed off this thread because it very interesting as I've been thinking along these lines for ages. When I re-read it I spotted this bit -

One of the advantages is that the trust can provide a fully furnished home for you to rent and in which case the furniture is tax deductible as well. Even if depreciated.

So what you are saying is the trust can buy a house load of furniture, claim it all in that tax year and then depreciate it as well? Isn't this double dipping the ATO?

 

[h8dk97]

Originally posted by DaleGG
Hi

Yes, I do it myself and have seen it done many times.

One of the advantages is that the trust can provide a fully furnished home for you to rent and in which case the furniture is tax deductible as well. Even if depreciated.

Another excellent advantage is the ability to refinance the property and use the funds for whatever purposes you like and still claim a tax deduction for the interest, which, an individual cannot do.

CGT will not apply on the sale of this PPOR if the home is subject to a long term lease.

There are some significant advantages and strongly suggest that you talk to your accountant about the possibilities.

Have fun

Dale

Hi Dale,

I am becoming a little sceptical now, if it's so good why isn't everyone doing it? Are there any drawbacks apart from the possible CGT on sale (I know you said that I may not need to pay CGT in certain circumstances), any other reason why people would not go for it?
Thanks.

 

[kheaver]

Can anyone point to any ato case law that we could look at to satisfy ourselves that this arrangement wont be struck down.

Thanks
Kim

 

[paulzag]

Originally posted by kheaver
Can anyone point to any ato case law that we could look at to satisfy ourselves that this arrangement wont be struck down.

Hi Kim

This sort of structure will result in the laws being changed once the ATO loses a couple of cases.

Basically these arrangements are of a commercial nature. The laws will change once every mum and dad know about it and try to do it on the cheap.

A good example was the changes to the Stamp Duty Act in NSW in I think 1997(?). Clever lawyers worked out a way to transfer real property without paying stamp duty. The loop-hole was originally used to transfer high-rise office towers and was eventually closed just as it became common knowledge (mum's and dads started tranfering the PPOR).

It wasn't illegal. It was a a direct result of sloppy law-making.

Regards

Paul Zag
Dreamspinner

 

[DaleGG]

Originally posted by Owen
Hi Dale,

I just printed off this thread because it very interesting as I've been thinking along these lines for ages. When I re-read it I spotted this bit -

One of the advantages is that the trust can provide a fully furnished home for you to rent and in which case the furniture is tax deductible as well. Even if depreciated.

So what you are saying is the trust can buy a house load of furniture, claim it all in that tax year and then depreciate it as well? Isn't this double dipping the ATO?

Hi Owen

I must not have explained myself very well at all. The furniture is not claimed as a deduction other than through depreciation. There is no double dipping.

Have fun

Dale

 

[DaleGG]

Originally posted by h8dk97
Hi Dale,

I am becoming a little sceptical now, if it's so good why isn't everyone doing it? Are there any drawbacks apart from the possible CGT on sale (I know you said that I may not need to pay CGT in certain circumstances), any other reason why people would not go for it?
Thanks.

Hi

Scetical is good - within reason. Not everyone does it simply because most do not know it is available to them. I can point to dozens of areas within the tax laws where not everyone does something just out of ignorance.

As mentioned previously, seek advice from your accountant before considering anything from this forum.

Have fun

Dale

 

[DaleGG]

Originally posted by kheaver
Can anyone point to any ato case law that we could look at to satisfy ourselves that this arrangement wont be struck down.

Thanks
Kim

Hi Kim

Whilst I am sure that you meant well, you should be aware that there is no such animal. The tax office do attack many different things, legal and illegal alike, and have been known to argue against their own rulings!!

As Paul has explained, we use the law to our advantage rather than breaking the law.

Have fun

Dale

 

[Aceyducey]

Seconding Dale's bit on the ATO's tax rulings, in the mid-90s I produced a number of CD-Rom products.

In dealing with CD duplication factories I discovered that each one had their own tax ruling.

Each one paid a different rate of tax for producing the same product - crazy. It made the duplicators with the best lawyers the most competitive as they would pay up to 8 cents less tax per unit (which on millions of units is quite a hefty amount).

Thankfully this issue went away with the GST.

The ATO are like Judges - they are bound by the laws passed by parliament, but have a certain amount of latitude in how they interpret these laws....and accountants are the lawyers building the case and finding the loopholes

Cheers,

Aceyducey

 

[MichaelM]

Originally posted by DaleGG
Hi

Yes, I do it myself and have seen it done many times.

One of the advantages is that the trust can provide a fully furnished home for you to rent and in which case the furniture is tax deductible as well. Even if depreciated.





If I set up a discretionary trust and bought a fully furnished property to rent to myself (as a beneficiary) - would this only be worthwhile if the trust was already receiving income from another source?

Otherwise if this was the only property held in the trust and was negatively geared there would be no benefit would there (besides the obvious asset protection) as the loss would be trapped in the trust?

 

[DaleGG]

Originally posted by MichaelM

If I set up a discretionary trust and bought a fully furnished property to rent to myself (as a beneficiary) - would this only be worthwhile if the trust was already receiving income from another source?

Otherwise if this was the only property held in the trust and was negatively geared there would be no benefit would there (besides the obvious asset protection) as the loss would be trapped in the trust? [/B]

Hi

You are right, of course, the tax losses would be trapped within the trust and carried forward until such time as the trust makes a profit.

Income from another source does make it more worthwhile.

May I also suggest that you keep in mind that rental of a home office could be a tax deduction, and, that depending upon your income, Centrelink might allow you to claim rental assistance from them . . .

You need to have other reasons for doing things, besides tax.

Have fun

Dale

 

[paulzag]

Originally posted by MichaelM
Otherwise if this was the only property held in the trust and was negatively geared there would be no benefit would there (besides the obvious asset protection) as the loss would be trapped in the trust?

Don't underestimate the benefit of asset protection. That is reason enough for many people.

Regards

Paul Zag
Dreamspinner

 

[Jas]

I already have a PPOR (fully furnished), not in a trust. So where to from here?

Can I sell my furniture to the trust, and rent it back? When I do move (eventually) to a new PPOR, and I want to place it inside the trust, I'll still have my current furniture...

Can I rent my furniture in my current place?
Could I rent my PPOR to the trust, and sublet it back?

What other options are there?


Jas

PS - I like the way people think. Rolf has a financial method (placing the PPOR into an i/o offset loan), while Dale comes up with an accounting one. Lotsa ideas