Setting up Trusts

[Terryw]

in this type of situation you have to weigh up the benefits of getting you an income verses your husband saving tax.

If you were to use a discretionary trust you could divert the profits to yourself. Up to approx $16,000 pa tax free. Where as if you bought in your husband's name he would pay approx half in tax. But this is assuming there is a profit.

With property there is usually a loss in the first few years, so if bought in a trust then the losses will need to be carried forward (assuming trust has no other income) and husband cannot save tax.

If bought in husband's name you may be able to save a few thousand in tax in the intial years. This in turn could help you afford further investments.

But, thinking long term, your rental income will increase and the property will make a profit. So if in husband's name he will be paying approx 50% tax and you will still have no income - assuming your situation doesn't change. Same if you sell, though CGT will be a max of 24%, but you will still have no income.

So i think you need to weigh up short term verse long term. Maybe do some spreadsheets, make a list of pros and cons of using a trust.

If you were self employed it would be much easier to divert income into the trust to offset the loss and to save tax, but being PAYE makes it inflexible in this regard.

 

[jewels]

this is so.... confusing

Hi there, I too have been looking into/reading books, asking questions to people for a while now, if a trust is right for us, I really am not sure if the benefits outway the diadvantages.

here is a snap shot of us

-We have 8 IP, all in our personal names (we currently don't pay land tax, as all over Aus, however if we buy one more in Qld we will be over the limit, and Qld is where I would like to buy the next one, but not neccasary)

-our properties run at a loss every year,
-My husband and my income are very low, we have far more losses form property than what we can actually negative gear, every year running into negative figures, so pay $0 tax.
Our incomes are not likely to increase much.

If we were to purchase in a trust, I beleive the losses can be carried forward to such time it runs at a profit.

my next couple of purchases I would like to get something close to positvely geared as possible(if I can find one) as I don't want any more losses, not sure if its too late to buy in trusts for our purpose.

we intend to never sell, except when we retire we will clear a couple of houses.

we have 3 kids, and I like the idea of a trust so that their spouses to be, cant take everything we have worked hard to get.

so that is a snap shot on me,

I would love to hear peoples opinions if they would get a trust in our situation.
Jewels

 

[Terryw]

Hi Jewels

I would def look at using a Discretionary Trust. There should be virtually no disadvantages to you as you cannot benefit from negative gearing in your own names, you are approaching land tax thresholds anyway and you will be looking for positive geared places. You will also get all the usual benefits of asset protection, tax effectiveness etc.

 

[GreenGoblin]

i would buy in personal names - however - only buy each property in one name (not joint) because of the land tax thresholds. eg, if you buy a $300k property in joint names, then you both have $300k put against your threshold - it is not divided by half. it means you can both buy a $300k property in individual names with the same land tax implications.

problem is - which name? we strike that problem every purchase and often get it "wrong" as our requirements from a particular property change over time.

Could someone familiar with land tax in VIC please clarify Lizzie’s post above? My wife and I own an IP jointly, 40% in her name, 60% in mine. Assuming the IP’s Unimproved Site Value is $200k, has she ‘used’ $80k of her $250k land tax threshold, or $200k of her threshold (and similarly $120k or $200k for me)?

Thanks,
GreenGoblin