Refinancing help

From: Rolf Latham


Hi AC

Why do you say a trust is not suitable because you are employees ?

Ta

Rolf
 
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Reply: 1
From: A C


It is my understanding that to offset deductions the trust must be making profit elsewhere. Therefore if the property is negatively geared do you not lose what you could normally offset against personal exertion income?
 
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Reply: 1.1
From: Rolf Latham


Hi AC

Yes I understand that that be the case in the short term. Dont forget though you can add income producing assets into that trust and thereby offset such a loss. A lot depends on what you want longer term, many employees take the bath for the first years to then bathe in the sunshine of the flexibility of choosing who gets what this year rather than be dictated by title deeds.


Ta


Rolf
 
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Reply: 1.1.1
From: Rick Kirk


Pardon me if I'm totally off base about this. But aren't you just going to pay a heap of transfer fees from all this?

If the PPR has so much equity in it then it's rent will be highly positive, as the lowest income earner already owns it that should be OK. The neutral and -ve properties stay with the higher income earner again, as it should be. (The neutral doesn't really matter).

I'm not entirely sure but I'd be checking out just how much better off you're going to be vs the costs associated with doing this.

Why not leave it as it as and buy another IP and move anyway?

Cheers,
Rick.
 
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Reply: 1.1.1.1
From: Terry Avery


I would have to agree with Rick. You are going to pay a lot in transferring properties from one name to another, including stamp duty, conveyancing, title office fees and you may also trigger capital gains tax. Have you factored all these costs into the proposal. Are you really going to save that much tax to make it worthwhile or have you fallen into the trap of getting a tax deduction no matter how much it costs.

One of my pet issues is with comments like "I don't want to pay tax on the rent".

HELLO! the aim is to make a profit, to make money. If you are paying tax then you are making money are you not? By all means minimise the tax you have to pay but don't fall into the trap of paying out a lot of money just so you can save a little tax. The example I use is which would you rather do? Make $1 profit and pay maybe 48.5 cents in tax (including medicare) and end up with 51.5 cents in your pocket. OR spend $1 and get 47 cents back in tax so you end up 53 cents out of pocket. Hmm 51.5 cents up versus 52 cents down? That is a difference in outcome of $1.035! I know which I prefer.

Seriously though one has to question the advice of the mortgage broker suggesting you swap IPs. Are they qualified to give you financial planning advice? They are treading on very dangerous ground giving you advice like that. In fact you could follow their advice and then sue them for the stamp duty, transfer costs, CGT and any other costs for giving financial advice which did not suit your circumstances. That way you could do it and end up costing you nothing to transfer. However, I would not recommend following the advice but think very carefully about what they are saying, preferably get the advice of an IP savvy accountant or financial planner.

Good Luck

Terry

Disclaimer: This is not financial or taxation advice, always seek the advice of your accountant, solicitor and financial planner.
 
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Reply: 1.1.1.1.1
From: Tibor Bode


Complete agreement with Terry. The name of the game is to make money. No one ever went bankrupt by making a real profit.

Regarding to the transfer of existing properties to a trust is not worth it. I have a couple but no trust (I met Dale too late for the existing ones), but future ones will be bought in a trust. All of the above fees, Cap gain tax, etc. applies. Its a pity, but not much can be done about it, unless some legal and financial genius can find the hole in the books how to avoid these fees. When the person is found, I'd love to give them some business.


Tibor
 
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Reply: 1.1.1.1.1.1
From: Terry Avery


I thought I would just expand a bit on what I said before about not chasing tax deductions for the sake of lowering the tax bill.

Two IPs owned by higher earner.
Loans of $306K at 6% interest = $18,360 interest p.a.
Tax refund at 47% rate = $8,629

Transfer to lower income earner
Loans of $360K at 6% interest = $18,360 interest p.a.
Tax refund at 30% = $5,508

So you have lost $3,121 in tax refund
Stamp duty on two properties worth $220K in VIC might be around $15,000 each
Say conveyancing, loan fees, title office fees costs another $2,000
So you have spent $34,000 and decreased your tax refund in order to avoid paying tax on the profit.
Say your profit on the rent is $5,000 a year then you would pay tax of $2,350 leaving $2,650 for you.

I hope you can see what I am getting at. The great Australian preoccupation of avoiding paying tax is costing some people dearly.

What you need to do is crunch the numbers. What is your current financial position? Lay it out clearly. What would be your financial position if you followed your broker's advice? What are the costs involved? If you are ahead financially how long will it take to recover the costs of the transfer?

Have fun

Terry
 
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Reply: 1.1.1.1.1.1.1
From: A C


Thanks everyone,

I think I'll investigate your idea Terry.

I do not mind paying my fair share of taxes, and I'm as happy as anyone to profit, but I absolutely refuse to pay any more tax than I am legally or humanly required to and will explore any possible means of doing so.

CGT will be payable on IP1 & 2, approx $100K gain ie $25K payable. I believe Stamp duty won't apply on mortgage transfer between spouses ( I think we have to keep 1%), and S/D on mortgage is only on the additional amount, not the entire amount. Please correct me if I'm wrong (like I have to ask).
PPOR sale will not incur CGT.

After crunching the figures again I have come to the following conclusions. I would receive $150/wk after costs and tax with the current structure and $220/wk in the proposed structure. The $70/wk or $4k/yr would take me 6 years to pay off the CGT paid and therefore the current structure seems the best to me. It all comes down to those numbers.

Thanks again for all your time and words of wisdom.

A C
 
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