PPOR & trusts again

[Roz]

Hi all,
I have been reading all the posts on trusts and have another question about putting a PPOR in a trust and paying rent. I understand the idea is to pay market value as rent. But I was wondering since you need positive cash flow in a discretionary trust, can you pay more than the market value rent. Eg say you would normally rent the property at $200pw could you pay yourself rent at $250pw to make it cashflow positive. Any negatives or positives?
Roz

 

[Nicholas H]

I think the point of charging market value of rent is to keep it at arms length. To try and prove you are not doing it for tax reasons. You also need to be able to justify the rent your charging so you are protected from the ATO being able to trample you. I am sure someone knows better then me tho

 

[Patosan]

I'm not sure that you "need" positive cashflow in a discretionary trust. Sure the losses can't be distributed but they can be carried forward indefinitely.

Though naturally reaping the benefit of neg gearing now rather than some distant time in the future would be advantageous. Especially since the loss can't be indexed, ie it losses it's real value with each year carried forward.

This is my basic understanding, and actually I'll return to see if I'm indeed in need of correction. As I'm soon to embark down the road of a discretionary trust myself.

In my case though living o.s. I don't have any other Oz income to offset a loss against, thus I keep my gearing close to neutral most of the time. So for me the "loss" situation is not an issue in a trust.

Good luck with your journey.

 

[Roz]

Thanks everyone,
That has helped my understanding a lot. I am about to buy another PPOR and I am trying to work out whether to put it in a trust or not.
Roz