"Profits to trust, loss to me?"

From: Steve K.


I don't suppose it is possible for me to be paying for a mortgage and thus claiming the tax deduction (in the expectation of a profit when I sell the property) but directing the rental payments into my family trust so that the trust get's the income instead of me?
 
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"RE: Profits to trust, loss to me?"

Reply: 1
From: Duncan M


Steve,

Interesting point and something I've been pondering recently.. Given that a
Trust can LEASE an asset, why not lease your IP's to your Trust, have the
Trust sublet them to various Tenants. The Trust rightfully collects the
rent, and remits you your agreed Lease payment. Of course you will need to
remit some of the rent thru to yourself, but given that the Trust is wearing
the risk of the transaction they can rightfully retain some profits, to be
streamed out to various beneficiaries or expensed internally within the
Trust..


Dale baby.. implications?

Regards,

Duncan.
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1
From: Fiona H


Here's another idea:-

You lease the IP from the trust?

- gives you the tax benefits upfront to help the cashflow go positive whilst,
- maintains asset protection if you get sued/etc
- when the property is cash flow positive WITHOUT tax deduction, then end the lease?

Will it affect the banks when you buy?
How much to pay the trust? Dale?
Could it be deemed avoidance? I mean, why would you do it otherwise?

Cheers
Fiona
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1.1
From: Duncan M


Fiona,

Good idea, (if your trust owns the properties).. in fact I think you'd even
be able to access the depreciation personally as I believe just controlling
an asset is enough to be able claim the depreciation..

This idea could work well in both directions?

Obviously the Trust needs a sound commercial reason to lease to you, if you
signed a 2 year lease, that would be a sound reason, it gives the trust
certainty of income..


Duncan.




-----Original Message-----
From: propertyforum Listmanager
[mailto:[email protected]]
Sent: None
Subject: RE: Profits to trust, loss to me?


From: "Fiona H" <[email protected]>

Here's another idea:-

You lease the IP from the trust?

- gives you the tax benefits upfront to help the cashflow go positive
whilst,
- maintains asset protection if you get sued/etc
- when the property is cash flow positive WITHOUT tax deduction, then end
the lease?

Will it affect the banks when you buy?
How much to pay the trust? Dale?
Could it be deemed avoidance? I mean, why would you do it otherwise?

Cheers
Fiona



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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.1
From: Owen .


I'm actually doing the first scenario Duncan wrote about.

I bought a property in my name and immediately leased it to my trust. I then personally renovated it and then the trust sub-let it at a higher rate.

The end result is the trust earns an income and I get the negative gearing benefits and tax deductions against my salary.

I was originally going to scrap the QS report I got before renovating and get a new one at the after-reno values but I think this would be pushing it with the ATO even though the property was rented from day one (I'll confirm with my accountant at tax time). There is not a lot of wear and tear in one day so the reno costs will just be added to my cost base. It achieved the main aims anyway by increasing the valuation by 25% (enough to cover 100% purchase + costs + reno in the refinance) and increase the rent to provide income for the trust. The original QS report has stayed in place.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.1.1
From: Dale Gatherum-Goss


Hi

I looooove the way you guys think!!!

No reason at all why you can't do this sort of stuff, although, as Duncan suggested, make sure that you can argue commercial reasons for doing what you do.

The tax office might still attack, but, if it all stacks up then you should be OK.

Just one more thought though, watch asset protection. Having the IP's in the trust keeps them safer than in your own name.

Well done!

Dale
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.1.1.1
From: Waverly Bay


Hi there

Dale said: "No reason at all why you can't do this sort of stuff, although, as Duncan suggested, make sure that you can argue commercial reasons for doing what you do."

Owen/Duncan.... in your scenario 1 structure:

1) taxpayer owns the IP

2) leases it to a trust (which presumably has a corporate trustee that is ultimately controlled by the taxpayer or the taxpayer's associates)

3) the trust then enters into a sub leases with the tenants charging higher rent (than what is paid to the taxpayer under step 2 above).

I was just wondering what sort of commercial reasons can be put forward to justify interposing a trust entity between the taxpayer and the tenant.... particularly given that the trust entity is ultimately controlled by the taxpayer/or taxpayer's associates?

Presumably one would need to ensure that the headlease and sublease properly allocates the risk of the "live-in-tenants" to the trust (lessee/sublessor) and away from the taxpayer owner (lessor). Eg - default risk, public liability risks, malicious damage risks etc would be the responsibility of the trust...and indeed, the trust would indemnify the taxpayer (lessor) for any claims/litigations etc from the live-in tenants for these risks. To compensate for the higher risk assumed by the trust under the sub lease, the trust would be entitled to a higher rent than what is received by the taxpayer under the head lease.

But if the trust is controlled by the taxpayer and/or its associates ... does this raise any concerns ? presumably no..if the dealings between the taxpayer and trust is arms length

Any other thoughts welcome !

cheers
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.1.1.1.1
From: Robert Forward


A reasonable commercial reason I can see doing this style would be that the Trust would guarantee a 2 year lease, hence a lower rent to the trust.

The trust then takes on the risk for keeping the property tenanted, thus asking for a higher rent to cover its risk factor.

As long as it's documented down I'd think you would have a very good chance during any audit.

Cheers,
Robert

Get your Property Inspection Reports @
http://www.CreativeFinance.com.au
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.2
From: Always Learning


Ducan said
<p>

in fact I think you'd even
be able to access the depreciation personally as I believe just controlling
an asset is enough to be able claim the depreciation..

<p>
Could someone explain this a little more (Duncan?). This is bit different to my understanding of what a trust is an how it works. I believed that you can only claim depreciation against your personal tax, IFF (if and only if) the asset is "owned" by you?
<p>
BTW Doesn't this seem a great way to get out of the dilemma of "How do I buy and new PPOR and let out my old PPOR and still claim maximum tax benefits?" Buy the new PPOR in your name, lease it to your trust and then have the trust least back the property at "market" rent to your wife/husband/significant other!. Whilst it is my original thought, I am sure it is actually very unoriginal, and has been considered and tested before...does it work?
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.2.1
From: Steve K.


I think you will find that the trust can't lease it back to you or your significant other. In fact I think the ATO took a case to court over exactly that scenario and won. The idea only works if the properties are rented by third parties i.e. genuine rental properties, not with principal place of residence.
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.2.2
From: Duncan M




Hi AL,

I seem to recall a Peter Spann scam that revolved around leasing carparking
spaces from other owners in an Apartment Block, because he then effectively
controlled the asset he was entitled to the depreciation. I'll have a dig
around the ATO website later and see what I can find..


Duncan.


-----Original Message-----
From: propertyforum Listmanager
[mailto:[email protected]]
Sent: None
Subject: RE: Profits to trust, loss to me?


From: "Always Learning" <[email protected]>

Ducan said
<p>

in fact I think you'd even
be able to access the depreciation personally as I believe just controlling
an asset is enough to be able claim the depreciation..

Could someone explain this a little more (Duncan?). This is bit different to
my understanding of what a trust is an how it works. How can you claim
depreciation on your personal tax IFF (if and only if) the
asset is not "owned" by you?
<p>
BTW Doesn't this seem a great way to get out of the dilemma of "How do I buy
and new PPOR and let out my old PPOR and still claim maximum tax benefits?"
Buy the new PPOR in your name, lease it to your trust and then have the
trust least the property at market rent to your wife/husband/significant
other!. Whilst it is my original thought, I am sure it has been considered
and tested before...does it work?



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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.2.2.1
From: Duncan M




AL,

I found this at the ATO Web Site:


"Who can depreciate plant?
Only owners or quasi-owners can depreciate plant. You will be treated as the
owner of the plant for depreciation purposes if you are the legal owner or
you hold sufficient rights over the plant to characterise you as the owner
in preference to any other person who also holds rights over the plant.

Quasi-ownership covers the situation where plant is attached to land that
you do not own but have a right to use. This only applies where the land is
owned by certain Australian and foreign government agencies. An example of
quasi-ownership is where you have a Crown lease and have attached plant to
that land after you acquired the lease.

Quasi-ownership also applies to plant which you have leased to a lessee and
which has become a fixture on land that you do not own, provided certain
conditions are met.

If there is a quasi-owner, only the quasi-owner can claim depreciation. If
you are not sure whether you are the owner of the plant, contact your
professional tax adviser or ring the ATO."


I'm unsure what the upshot is..


Duncan.






-----Original Message-----
From: propertyforum Listmanager
[mailto:[email protected]]
Sent: None
Subject: RE: Profits to trust, loss to me?


From: Duncan Margetts <[email protected]>



Hi AL,

I seem to recall a Peter Spann scam that revolved around leasing carparking
spaces from other owners in an Apartment Block, because he then effectively
controlled the asset he was entitled to the depreciation. I'll have a dig
around the ATO website later and see what I can find..


Duncan.


-----Original Message-----
From: propertyforum Listmanager
[mailto:[email protected]]
Sent: None
Subject: RE: Profits to trust, loss to me?


From: "Always Learning" <[email protected]>

Ducan said
<p>

in fact I think you'd even
be able to access the depreciation personally as I believe just controlling
an asset is enough to be able claim the depreciation..

Could someone explain this a little more (Duncan?). This is bit different to
my understanding of what a trust is an how it works. How can you claim
depreciation on your personal tax IFF (if and only if) the
asset is not "owned" by you?
<p>
BTW Doesn't this seem a great way to get out of the dilemma of "How do I buy
and new PPOR and let out my old PPOR and still claim maximum tax benefits?"
Buy the new PPOR in your name, lease it to your trust and then have the
trust least the property at market rent to your wife/husband/significant
other!. Whilst it is my original thought, I am sure it has been considered
and tested before...does it work?



To reply: mailto:p[email protected]
To start a new topic: mailto:p[email protected]
To login: http://bne003w.webcentral.com.au:80/~wb013


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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.2.2.1.1
From: Boyler Room


Dunc,

So that could work in the case where I'm doing lease option sandwiches. I'm leasing from one person, then sub letting to another... therefore I am a quasi-owner and have the right to depreciate??

Does that make sense, or am I on the wrong bus..... heading to no man's land??

Boyler Room
Co Ordinator for ADL Freestylers
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.2.2.1.1.1
From: Duncan M


Allan,

Not sure, its at the extent of my knowledge..

Duncan.
 
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"RE: Profits to trust, loss to me?"

Reply: 1.1.1.2.2.2
From: Duncan M


>Hi AL,
>
>I seem to recall a Peter Spann
>scam that revolved around
>leasing carparking
>spaces from other owners in an
>Apartment Block, because he
>then effectively
>controlled the asset he was
>entitled to the depreciation.
>I'll have a dig
>around the ATO website later
>and see what I can find..
>
>
>Duncan.


Please note that what Peter did was perfectly legal. The usage of the word 'scam' above was meant to signify impressive and lateral thinking, at least thats what I've used it to mean,colloquially, in the past.

I unreservedly offer my profound apologies to Peter if any offence has been taken.

Duncan.
 
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