Smart Finance, Structure & Effetive Tax solutions- where to start

S

staceyo

Hi
We have been plodding along nicely but in hindsight could have done things better, smarter & quicker.

Once you get a couple of IP under your belt where can you get good advice on matters such as:

-when you may need to consider buying in another structure
-tax minimisation recommendations- specifically when & how
-portfolio analysis
-make all your money work smarter & harder for you

I'm guessing a good accountant? But I'm finding that easier said than done, mine does a great tax return but doesn't seem to get it when I ask about getting ahead. Being a bit green I also don't know how to ask the right questions.


Happy for any advice, recommendations, examples etc...... Thanks in advance.

Stacey
 
An accountant is the right place to go for advice on tax minimization, trust structures, etc.

A good broker specializing in property investing should be able to structure your finances to suit this and can work on portfolio analysis.

The best thing you can do to help all this is to have a good idea of the outcomes you want and the strategies you'll employ to achieve those outcomes.

Unfortunately all this can be very difficult to nail down when you're starting out. Most people will be able to give good advice when properly prompted, but it's unlikely the ideal way forward would be handed to you without you getting the process started.
 
Hey Stacey

An excellent accountant and finance person would be a good start. The former can advise on entity ownership whilst the latter on loan structure, borrowing capacity, ect.

However - as mentioned by Pete, you really need to know what your goals are first so they can tailor their advice accordingly.

Cheers

Jamie
 
In my experience the mistake most make is they wait until "they have a few IPs under their belt"....before seeking advice. Some of the happiest clients are those who sought advice before their first IP. They didn't buy in their own names and understand why it can be very limiting later. Even if they choose to ignore that they are armed with the knowledge. Everyone is different.

Stacey raises a very good point. Many accountants are good at basic tax but lack property relevant strategies that address structure, land tax, duties, loans atc and often their skill set is confined to a single state they reside in. Not all are in the same boat.

There is no substitute for personal advice. The earlier the better.
 
Hi Stacey - this was one of the first questions i got to when i started investing a few years ago. Its easy to appreciate that good advice is valuable, but i often wondered whether the cost involved would be worth it (eg accountant/laywer fees).

Nonetheless, i found that i kept researching, that there is ample information out there and plenty of people willing to help. I started talking to people in the industry - accountants, lawyers, lots of brokers, agents etc.

They all helped in forming my tailored investing plan and initial info part was all done for free (just general chats more than professional advice). That could be a start - once you have that info set, you're likely to have a better feel for what professional services you need.

Cheers,
Redom
 
The front page of the std contract in every state contains the same mistake...It offers three choices of ownership. (But only actually mentions two). All of them are FIXED....Its expensive to change that.

Sometimes a flexible form of ownership where ownership can be easily later changed makes sense. Often no stamp duty... Maybe even a ownership method that allows a SMSF later on. Personal ownership prevents that too. Even a simple process to redraw on the equity in the property and use the funds for private use and its tax deductible....Legit way to refresh and recycle debt without acquiring more property.

When you deal with CGT every client says the same thing "why didn't I put title into different names, different % etc ??" What seems smart today isn't smart after 5 years, or 15 or more.
 
Paul@PFI said:
The front page of the std contract in every state contains the same mistake...It offers three choices of ownership. (But only actually mentions two). All of them are FIXED....Its expensive to change that.

.
Click to expand...

So are you are saying hybrid trust? What about land tax in NSW in particular?
 
With trusts you can keep the legal owner the same but change the beneficial ownership underneath.

e.g. a company of a fixed unit owns the property, an individual owns the units of the trust. NSW land tax threshold can be obtained so no land tax payable - based on the unit holder.

Later the units can be transferred. ownership of the property can stay the same so no stamp duty on the transfer of land. In NSW stamp duty on the transfer of units is currently 0.6% of the value of the units (compared to up to 7% on the transfer of land) so this is much cheaper.

There is also a prohibition of transferring property owned by a member or an associate of a member to a SMSF. But it is possible to get the units owned by a unit trust into a SMSF (SIS Reg 13.C) thus you can indirectly get a residential property into super - where income and CGT could be totally exempt.

As usual - or more than usual - there are a lot of issues with these so don't try at home
 
Many peops that come across our path have gone into a Japanese restaurant looking for the spaghetti Bolognese.......................

The structure side of things is rarely addressed, and usually only so because land tax issues or borrowing considerations have gotten in the way.

There is no right solution for everybody and everything, all outcomes are a compromise somewhere along the path

ta
rolf
 
As Paul is fond of unit trusts. The most important thing to me and most people is finance and availability of finance.

How does unit trust impact on finance compare to standard ownership in personal names? Do banks assess the application based on the percentage of units owned? Do they assess it as a typical guarantor where you (personal) are responsible for all of the loan no matter the number of units owned?
 
D_One said:
How does unit trust impact on finance compare to standard ownership in personal names?
Click to expand...



Lending is typically based on "joint and several" liability across all unit holders AND in most cases the contingent liability of the guarantees.


BUT one of the things I drive quite hard with my clients.........

DO NOT allow financing considerations to Underlie Legal/Tax/ Estate Planning Considerations, unless those higher levvel things make finance "impossible"

The available pool of lenders for proper Unit trust structures is obviously smaller than those for personal lending, especially above 80 % lvr, but in most cases, these restrictions dont stop many borrowers. they are usually stopped by other issues such as limited resources ( age income equity etc)

Appropriate use of right lender at the right time is more important here than for personal lending.

ta
rolf
 
Last edited:
So basically, going via a unit trust only has the same impact as personal names in regards to finance bar a few lenders. In that situation, with the advantages that a unit trust provides, it is silly to acquire investment properties in personal names.

For the legal gurus, in which states does land tax thresholds apply for unit trusts? Only NSW?
 
Last edited:
D_One said:
As Paul is fond of unit trusts. The most important thing to me and most people is finance and availability of finance.

How does unit trust impact on finance compare to standard ownership in personal names? Do banks assess the application based on the percentage of units owned? Do they assess it as a typical guarantor where you (personal) are responsible for all of the loan no matter the number of units owned?
Click to expand...

With unit trusts you must distinguish between 2 different borrowing set ups:
1. Trust owns the property and the trustee borrows, and
2. Trust owns the property and the unit holder borrows.

No 1 is relatively simple. There are just a few lenders that will not lend to unit trusts.

No 2 is more complex because the loan needs to be in the name of a person who is not the owner of the property. This is more difficult than 1 and more restrictive. But there are still a fair few of lenders out there who will do this.

In all cases the directors of the trustee will be giving guarantees and probably all unit holders as well. Minor unit holders may get away without a guarantee.
 
D_One said:
So basically, going via a unit trust only has the same impact as personal names in regards to finance bar a few lenders. In that situation, with the advantages that a unit trust provides, it is silly to acquire investment properties in personal names.

For the legal gurus, in which states does land tax thresholds apply for unit trusts? Only NSW?
Click to expand...

Land tax thresholds don't apply for unit trusts in NSW. A trust is taxed at $1 worth of land upwards.

But if the trust is a fixed trust where the unit holders have absolute entitlement to both income and capital and this cannot be varied then the unit holders are considered owners of the property for land tax purposes and their personal land tax thresholds apply to the land owned by the trustee.
 
Is it fair to say a fixed unit trust will have a fixed amount of units, but their allocation can change over time?

E.g
Year 1.
Trust = 100 units
- Person A owns 20units
- Person B owns 80

Year 2.
Trust = 100 units
-Person A owns 40
-Person B owns 60.

Or does the deed have a fixed allocation which cannot be altered?
 
D_One said:
So basically, going via a unit trust only has the same impact as personal names in regards to finance bar a few lenders.
Click to expand...


One small add on.

For a unit holder to be able to access neg gearing, the loan usually needs to be in the name of the unit holder with a security guarantee from the trustee.

Many lenders consider this as a 3rd party guarantee and will not lend in that structure................. so its more than a a few lenders if your needs are around neg gearing maintenance.

for those with a business running through a trust, these peops have the opportunity to use a normal discretionary trust for properties because they can flush pre tax income from the business through the DT thus not quarantining the tax losses.

Pls seek specific structuring, tax and financing advice.

ta
rolf
 
D_One said:
Is it fair to say a fixed unit trust will have a fixed amount of units, but their allocation can change over time?

E.g
Year 1.
Trust = 100 units
- Person A owns 20units
- Person B owns 80

Year 2.
Trust = 100 units
-Person A owns 40
-Person B owns 60.

Or does the deed have a fixed allocation which cannot be altered?
Click to expand...

Units can be transferred. All the usual consequences apply to change of ownership
 
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