Marco,
I looked at your PIT and have to be 100% honest 2 major things put me off:
1 - Your fee charged for the initial consultation - I used to run a Financial Services business and i struggle having heard feedback from others who were very unimpressed by the initial time spent with yourselves why this is necessary, after all you are not giving specific advice as the disclaimer on your website clearly states.
2 - The lack of banks willing to lend to your PIT - I appreciate you will not want to name specific lenders/banks but please be 100% transparent on the number of lenders who are now offering lending following the ruling - Number of lenders and number of products available, % difference between available lending and that charged to the PIT to demonstrate if they class it as more risky etc.
Regards
ScottyB
Hi ScottyB
1.
Not everyone needs a Trust and the initial consultation helps determine whether a Trust is the right vehicle for the client. We find that only around 60% of clients need a Trust whether that's a Discretionary or Unit or Hybrid or Blind or Bare or a Property Investors Trust®. If we were to put people into a Trust without determining whether they needed one or not, or indeed the right type because different types of Trusts all do different things, we would not be doing our job properly.
A recent example highlights why it’s dangerous to buy a Trust without a consultation first.
A client insisted on buying our PIT® without a consultation. After explaining that he needed to sign a Disclaimer if he bought a PIT® without a consultation, he reluctantly agreed to go through the process. During the consultation we discovered he did NOT need a PIT® because it was his first property in NSW and Trusts do not get a land tax threshold in NSW. They do in other States. Simply buying his first property in a Trust would have cost him $6,000 extra in land tax per year for no reason. Over 10 years that would have been a $60,000 mistake. The initial consultation cost became a wise investment. As he needed asset protection (high risk occupation) and he wanted to utilize his land tax threshold he was better off buying in his own name with an Equity Bank Trust to strip the equity from the property giving him full asset protection without costing him extra land tax.
So in this situation the PIT® was not appropriate for him. Another solution got him a better and cheaper outcome. He acknowledged the consultation was necessary and self diagnosis was dangerous. If he bought a Trust and ended up with a $6,000 per year land tax bill, that would be akin to a doctor prescribing medication without a diagnosis first. That's professional negligence.
If the property was in Qld than straight into a PIT® would have been ok as QLD grants a land tax threshold to Trusts. Different States have different land tax rules.
One needs to be careful; all clients’ circumstances are different. If he had other properties in his name and he had used up his land tax threshold in his name (NSW) then going straight into a PIT® would have been fine.
The 7 things one must consider when determining the best structure for a client are both the short and long term consequences of income tax, capital gains tax, land tax, asset protection, estate planning, spouse income and family planning.
The long term consequences must be considered because one's circumstances will change over time and when that happens it throws out your tax position. For example your spouse may go back to work or you were an employee one day and the next day you start your own business and asset protection becomes important or you have been promoted and the extra responsibilities means you now need asset protection. You are married one day and then divorced the next. Single today and married tomorrow. You have properties in your name due to being on the highest tax bracket and then you retire and it's now in the wrong name. Property goes from negative gearing to positive gearing. To change it triggers stamp duty and capital gains tax. But in a PIT® there is no stamp duty in most States on the changing of unit holders.
It’s not one size fits all. I know we are all in a hurry, and all looking at cutting costs but mistakes costs tens of thousands of dollars to fix. The stamp duty alone on changing the title (if bought in the wrong entity or your circumstances have changed) is around $25,000+ for the average property.
An ounce of prevention is better than a pound of cure.
In the past, if our Consultants recognize that the client’s situation is a simple matter and did not require a detailed analysis, we would not go ahead with charging a fee even though a fee was quoted. Or if a fee was already paid and the consultant discovers that it was a simple matter the fee would be refunded.
However, recently we have gone one step further, our Consultants (usually the senior Partner) would spend 10 minutes up front, FREE of charge, to determine whether
(a) it’s a simple matter in which case NO fee is charged or
(b) it’s a complex matter and would take several hours (usually up to 2 hours) to determine the right structure and then advise the client of the time involved and the cost.
Either way, the client would still be assessed properly before committing them to a Trust of any sort.
Despite the criticism, we don't apologize for insisting on an initial consultation to properly determine whether one needs a Trust or not, because the wrong assessment could cost the clients a lot of money.
Thank you for the feedback, we have taken on board your concerns and believe we’ve made the appropriate changes to meet market concerns.
2.
In terms of loans for the PIT®, "Chan & Naylor Finance" has never had problems finding loans for our PIT® s. We also have our own white labelled "Chan & Naylor PIT® loan" at very competitive interest rates. Many other Finance Brokers also have no problems. Try "Investors Direct" or "Metropole Finance". However the ATO Product Ruling was only granted in July 2011 so if your experience was prior to this date you may find it different now.
Many Banks did not lend to Hybrid Trusts because of the ATO's attitude to them. But with an ATO Approved Product Ruling on our PIT there is no reason why they should have a problem. Certainly we have had no problems other than the normal contraction of low doc loans as the Banks reacted to risk during and post the GFC.
When one buys a property in a Trust or a Company structure (not necessarily just the PIT®, but any Trust) it becomes a "Business loan" which means the loan goes from the Retail section of the bank to the Commercial section of the Bank. At the risk of sounding cynical, there are no commissions payable or the commission rate is greatly reduced via the Commercial section as opposed to the Retail section so there is reluctance for Brokers to put the loan application through the Commercial section. It's easier to simply say "the PIT® is the problem". As with most things it's knowledge and experience that gets things done and sometimes it's also who you know and not what you know.
Our "CN Finance" had to negotiate a commission from the Commercial section of the Bank so perhaps this can happen for other Brokers as well.
Further whilst our Finance department puts the loans through ANZ or St.George Bank or CBA but it's NOT ALL branches of ANZ etc that understand this as with most big banks the left hand does not know what the right hand is doing. They generally operate as silos.
CN Finance have negotiated and educated certain branches of the major Banks to understand the PIT®. The problems will be isolated to a "lack of knowledge and experience of the banker or Broker" rather than the PIT® itself. Certainly armed with an ATO Product Ruling for the PIT® this will be even more so.
The interest rates are the normal rates. There is no loading other than the normal LVR loadings which applies to all loans.
If you are having trouble why don't you try CN Finance or the other Brokers mentioned above?
I hope the above explanation helps.
Regards,
Marco