Think I got bad advice from an accountant.

Went to have a chat to a local accountant today regarding possible structuring of our investment properties for most effective taxation (We are yet to buy and IP but are working towards it very soon).
We have a simple scenario, I am a PAYG employee, wife doesnt work, 2 small children. We intend to buy IPs on a long term buy and hold stratergy up to 20+ years.

He basically said a family trust with a $2 company as the trustee, my wife and I as directors of the company was our best bet. If we purchase a positively gear IP to purchase in the family trust, if we buy something that is negatively geared I should buy it in my name for negative gearing purposes.

He said a unit trust is no good as it generates a CGT event to transfer the units.

He thought new or near new properties we the best investment due to deprication.

He didn't know the current land tax threshold in NSW, nor whether we'd get the threhold with the family trust (this was a bit of a red flag for me as I already knew the answer before I asked the question).

When I asked about what tax deduction could the trust get that wouldnt be available when buying IPs in a personal name he was somewhat vauge.

I feel like I haven't been given the best adivce here and will seek out another accountant for a second opinion but just thought I'd see what others thought. How do you decide whether a professional you are speaking to is really giving good advice or is just trying to sound like they know what they are talking about?
 
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Hi XJ

there are some common sense things here that do need addressing to your satisfaction and I would be looking at some additional advice

t
arolf
 
I disagree, you have got the best advice an accountant could give you about something he isnt a specialist in.

Yes, buying in trusts is good for asset protection and streaming income. Yes, new homes are good for depreciation, yes, buying in your own name is good for negative gearing. So its all good advice, but what he hasnt touched on is the advice that you need to get from a good broker, a good estate agent buyers advocate, managing agent demographer, etc etc.

Its pretty good advice to use for a starting point. Id do some more research in these other areas, as well as reading and research and speaking to other property investors before lining up another accountant just yet.

You need to know the questions to ask before you can get the right answers.


For instance, the structure that is most tax effective might not be the same structure that builds your wealth the quickest (buying only new house and land packages on the outskirts of town for instance) or the structure that protects your wealth the best, (whether properties are all with the one lender and cross securitised for instance) etc etc
 
Xjas

poor quality advice in my opinion. Doesn't even consider the many other opportunities but most accountants have barely finished an ITP course let alone post graduate qualifications so they know nothing about tax strategic planning.

1. Transfer of units will be a CGT event but there are many strategies to reduce the CGT. E.g. Property bought for $500k. Now worth $600k. $100 gain.

Units transferred to SMSF at age 58 preparing for retirement at age 60. Not working at age 58 and no other income.

$100k capital gain. 50% discount means $50k assessable. Contribution made to super for $25k as 10% test is met. Tax on $25k in 2013 about $1,260.

Future capital gains in SMSF and earnings in SMSF now tax free until you die after age 60. Let's say 30 years. Well 30 years of tax free earnings.

2. Don't agree new or near new are best. Depreciation is a tax benefit. Different to something being better for investment purposes. nathan birch has successfully bought lower end properties and done very well. An accountant who only thinks of tax benefits.

3. Trusts can employ you as a managing agent and you can receive a tax free travel allowance. Needs to be done properly or whole thing falls apart.

Anyway discuss with martin or james at house of wealth. sounds like the current guy doesn't really deal wit structures.
 
And why have 2 directors? = 2 guarantees and double the risk. If you leave the non working wife out of it if the whole thing fails she won't go down too. Bringing her in adds no value - except it may give her a feeling of some control.
 
If the accountant seemed vague or you could not follow what he was advising you on then definitely seek out another one as he is not the accountant for you.

Any dope of an accountant can answer those questions you asked. Thresholds & eligibility questions re government concessions & incentives, etc can easily be found by google search on the internet, so that should not have been a problem.

Other answers he gave did have some basis of truth in them.

The starting point when purchasing IP's or any other asset for that matter is protecting it against you and what other activities you may undertake. This then leads into what structure to create or whose name it should be in. That's the man of straw, woman of substance principle. Asset protection.

The tax effectiveness of the setup then employed is the second most important issue.
 
Appreciate the replies, I perhaps should have said I felt we recieved incorrect or incomplete advice for our situation rather than bad advice.

I did feel that I went to the accountant with the right questions but I am certainly a novice so I may have got this wrong. I told him our situation and goals and asked him what did he think would be the most tax effective structure to buy the assets in, specfically would a trust structure be tax benificial long term, I did not mention asset protection.
I guess I think trust structure he suggested was one primary for asset protection rather than long term tax effectivness which wasnt really what I was asking for.
I realise that many value asset protection over tax effectivness and I understand that asset protection is important however in my situation (low combined income and low risk of being sued) I think tax effectivness is a higher priority than asset protection at this stage.
With a family trust losses being held in the trust rather than offset against my income I am concerned I might run into cashflow problems long term that I could otherwise avoid with a better structure, that said, I am not specifically looking to have negativly geared investments, the goal is to make money rather than save on tax.
He did mention that I could borrow money and loan it to the family trust and then offest the losses against my income but he was unsure on this, just mentioned it and then said he would have to think about whether it would be possible.
I brought up unit trusts a couple of times and the possibility of transfer the units to a SMSF at a later date and he didnt really seem interested in discussing them other than to say transfer of units was a CGT and stamp duty event.
 
He did mention that I could borrow money and loan it to the family trust and then offest the losses against my income but he was unsure on this, just mentioned it and then said he would have to think about whether it would be possible.

This is not possible.

If you borrow money and lend it to another person you can claim the interest, but only if you are doing it on commercial terms. This would mean you would have to charge the third party the same or more interest.

The interest you pay would be deductible but the interest you receive would be income. So if the interest rates are the same it is the third party that ends up claiming the interest as the deductions for you cancels out the income.
 
I brought up unit trusts a couple of times and the possibility of transfer the units to a SMSF at a later date and he didnt really seem interested in discussing them other than to say transfer of units was a CGT and stamp duty event.

For unit trusts with the register held in NSW the stamp duty on the transfer of units is due to be abolished on 01 July this year - this doesn't mean it will happen as it was supposed to be abolished last year, but the pushed it back a year.
 
This is not possible.

If you borrow money and lend it to another person you can claim the interest, but only if you are doing it on commercial terms. This would mean you would have to charge the third party the same or more interest.

The interest you pay would be deductible but the interest you receive would be income. So if the interest rates are the same it is the third party that ends up claiming the interest as the deductions for you cancels out the income.

Thanks for clearing that up, I wasn't sure either way on that one.
 
BTW, what did you pay for the advice?

It was $80, probably was there for around 45 minutes to and hour, which I think was good value for money because even if the advice wasnt the best it was a good leaning experience for me which is what I need at this stage, got me thinking about things I hadn't yet considered.
 
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It was $80, probably was there for around 45 minutes to and hour, which I think was good value for money because even if the advice wasnt the best it was a good leaning experience for me which is what I need at this stage, got me thinking about things I hadn't yet considered.

You get what you pay for.

Also, your accountant shouldn't be giving advice on what type of property ot buy. He could give you tax advice on the differences between near new and older properties, but he /she shouldn't recommenda type of property. (I'm assuming for 80 bucks an hour the accountant doesn't have the appropriate FS licence.)
 
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$80 for one hour. It means his services are not in demand at all and this is reflected in the poor quality advice provided. You have sought out a cheap accountant and in return received poor quality advice. You got what you paid for.

Like buying a pair of $2 shoes that last a week. They served their purpose for what you paid.

Any accountant charging $80 per hour doesn't know how to run a business and doesn't have any demand for their services. It is why they are cheap. Would also mean at those prices they can't afford to keep up to date with expensive but quality courses on strategic tax planning. At the end of the day the client suffers. Anyway plenty of cheap accountants out there like cheap hairdressers.

But don't complain when you get a bowl cut and look like a middle aged monk because that is what you paid for.
 
$80 for one hour. It means his services are not in demand at all and this is reflected in the poor quality advice provided. You have sought out a cheap accountant and in return received poor quality advice. You got what you paid for.

Like buying a pair of $2 shoes that last a week. They served their purpose for what you paid.

Any accountant charging $80 per hour doesn't know how to run a business and doesn't have any demand for their services. It is why they are cheap. Would also mean at those prices they can't afford to keep up to date with expensive but quality courses on strategic tax planning. At the end of the day the client suffers. Anyway plenty of cheap accountants out there like cheap hairdressers.

But don't complain when you get a bowl cut and look like a middle aged monk because that is what you paid for.

I didnt know how much he charged when I made the appointment, he was local and recommend by someone who had used him before (though not for property investment). I didn't specifically seek out someone who is cheap, or that I thought would be cheap but I understand your point and will keep this in mind with the next accountant I choose to engage for advice.
 
Yes sorry to sound soo harsh. People who know me know I can be blunt at times but sounded like a personal attack so sorry for that.

The reason I get riled is that I am currently working on a matter for a client where the previous cheap accountant has stuffed everything up. The client has a massive division 7a loan and owes the ato over 600k in tax and penalties. They are considering bankruptcy and are so depressed their marriage is falling apart and has started gambling heavily.

All because of cheap advice from a very poor and out of date accountant. His license should be revoked but we will see. Complaints have been made to the tax agents board so will be interesting to see the result. I really feel for clients who rely on these low value cheap accountants who have had their tax agent license for decades but have never kept up to date.

Terrible.
 
Yes sorry to sound soo harsh. People who know me know I can be blunt at times but sounded like a personal attack so sorry for that.

The reason I get riled is that I am currently working on a matter for a client where the previous cheap accountant has stuffed everything up. The client has a massive division 7a loan and owes the ato over 600k in tax and penalties. They are considering bankruptcy and are so depressed their marriage is falling apart and has started gambling heavily.

All because of cheap advice from a very poor and out of date accountant. His license should be revoked but we will see. Complaints have been made to the tax agents board so will be interesting to see the result. I really feel for clients who rely on these low value cheap accountants who have had their tax agent license for decades but have never kept up to date.

Terrible.


No need for an apology, I didn't take your comments as harsh or a personal attack, I though they were simply honest comments and I appreciate that honesty. I also was not defending my decision, just explaining what I had done. I made a poor choice in choosing an accountant, I accept that, it cost me $80, a cheap lesson in the grand scheme of things and a mistake I will learn from and hopefully not make again in the future.

Jas.
 
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