renting ppor from trust

[geoffw]

Just wonder how the Bank/Lending institution guidlines handle lending to a trust. May need more than 20% deposit.

I had thought that the bank looks "through" a standard family trust and looks at the trustee. If that's not the case, you could guarantee the loan.

Hybrid Trusts are a newer animal, and it may be harder to find banks who know enough about them to accept them at all.

Yout friendly Mortgage Broker will know thew ins and outs of how institutions deal with trusts.

 

[MasterInvestor]

Hi

You should have no problems getting a loan for a trust - even 95%, if you are able to qualify on your own.

But another point, you would be requried to pay commercial rent to your trust. At first this would be OK as you would be making a loss, but over the years, the rent will increase, eventually making it positively geared. Your trust then will have to pay tax on this income. This may not be such a huge problem though, as it could be offset by another negatively geared property etc.

MI

 

[Glebe]

Just wondering if anyone has made updates to this spreadsheet. It would be great if anyone could put in the potential purchase price, their tax rate, furniture costs etc and have the differences between renting via trust compared to straight ownership compared.

 

[alpina]

anyone have any more to add?

find this thread fascinating

julie

 

[twodogs]

I do not rent my PPOR through a trust but am considering it when I buy soon. I updated the spreadsheet to reflect more of the cash position after paying rent to the trust for 5 years. I have taken the budget for a house I was looking at in Sydney north shore.

The costs of running a PPOR in a trust and the extra taxes while held and when it is sold, make it more expensive to hold your PPOR in trust than not. The yearly tax breaks do not make up for the extra costs and sale taxes, unless there are very large amounts of other non-cash deductions. Sure the trust does OK with the house, but the REAL cost to you must be considered as you are paying it the rent.

Not dismissing using trusts at all, still many other good reasons, just playing with numbers,and these numbers are very simplistic too.

Some examples in REAL LIFE would be great compare to this... anyone got anything ?

 

[nidagirl]

ppor and trust

This is really interesting. Can anyone tell me how you can determine appropriate market rent???

Thanks

 

[Glebe]

Nida,

I don't think you need to be particularly scientific - just compare the rental prices at domain.com.au and realestate.com.au etc for a similar home to the one in question. So long as it sounds reasonable I'm sure you'll be fine.

 

[nidagirl]

Ppor and trust

Thanks Glebe,

Iwas thinking that maybe you need a real estate agent's written market value in case the ATO queries your commercial rent..

I notice that some of the investors here are living off equity in their properties. If you place your PPOR in a trust could you then use that equity as well to live off, taking into account you have income producing IP's to offset it against. Also, how many IP's would you need to place into a trust to make this a commercial proposition. Would the ATO do a woobly if you only have one property inside your trust, one that you live in?????? albeit it is not owned by you but the trust.

Nidagirl

 

[juggernaut]

Hi Nidagirl. To indirectly quote DaleGG, one of the two HDT guru's on this forum, YES, having only your PPOR within a HDT is potentially asking for trouble from the ATO.

Cheers

 

[XBenX]

Just an aside - dont forget that CGT is the easiest tax to avoid - and that changes all the calcs.

 

[redwing]

?

maniyak..what was your end result? I presume it took into account the compounding savings made by renting the IP from the Trust as well?

Some great ideas and contributors on this forum..

 

[twodogs]

maniyak..what was your end result? I presume it took into account the compounding savings made by renting the IP from the Trust as well?

Some great ideas and contributors on this forum..

Savings ? Not with the extra land tax and reduced neg gearing. If you want asset protection at a cost, or on high tax bracet maybe, well OK then, otherwise too expensive for me.

 

[juggernaut]

Hi Maniyak, not sure how you figured that a HDT has reduced neagative gearing. Whether you purchase an IP in your own name or a HDT, the neagtive gearing component is soley driven on your margingal tax rate.

Feel free to shoot me down if I am misinformed.

PS I am renting my HDT purchased IP to myself.

Cheers

 

[twodogs]

Hi Maniyak, not sure how you figured that a HDT has reduced neagative gearing.

Cheers

Tax deductions are worth less and less the more you have. If I'm down to lowest bracket, then more deductions are only in the 15c bracket, not worth losing $1 to get 15 cents back. In fact, if I was to add the PPOR to neg gear property (via a trust) then I suspect my expenses would exceed my income for the year. Many reasons to use trust for PPOR, I choose not to go that path right now as too expensive for benefits, but good on those who can.

 

[Coen]

This is really interesting. Can anyone tell me how you can determine appropriate market rent???

Thanks

Most valuations will have this information on it as well as replacement insurance value.

 

[bicko]

Get a couple of rental appraisals from separate Property Managers.

 

[redwing]

Market rent

And check the local paper and REA boards..

 

[bobby]

more on PPOR in trust

All this is good and a great thread, but a few posts mention CGT. Wouldn't the idea be to buy within the trust and then either never sell and live in it purchasing a neg geared property to offset the positive cashflow when it becomes cashflow positive or convert it to an IP?? There are other alternatives if selling and that is to distribute the income to a lower income beneficiary??

If CGT does not come into the equation then on a highly borrowed property with depreciation and borrowings then it must be advantageous to place a PPOR into a trust.

Bobby

 

[alwayscurious]

hmm?

Tax deductions are worth less and less the more you have. If I'm down to lowest bracket, then more deductions are only in the 15c bracket, not worth losing $1 to get 15 cents back. In fact, if I was to add the PPOR to neg gear property (via a trust) then I suspect my expenses would exceed my income for the year. Many reasons to use trust for PPOR, I choose not to go that path right now as too expensive for benefits, but good on those who can.

Hi there. This post confuses me.

Aren't the expenses something that you have to expend anyway if it is your PPOR - ie interest, rates etc etc. These are all things you are paying for and not getting a tax deduction for.

If you were able to get a tax deduction - through means and ways - would you not?

I might have too simplistic a view here maybe..

Perhaps you are referring to the expenses on sale - the additional CGT
and the ongoing Land tax payable.

 

[Bushy]

Other Advantages

Other advantages

- I/O loans for investments . P/I loans for owner occupier
- if ppor in trust is -ve geared you can offset against other trust income,


Regards Bushy