Trust queries (maybe for Dale and Rolf?)

From: Patrick Bruadair


Dale/Rolf,
I plan to set up a discretionary trust with my wife and I as trustees. Plan is to
buy and develop a triplex site in the name of the trust, and sell two/retain one
for rental. The intent is that my wife, who is a non-income earner, will be the main beneficiary of any trust profits or income.

I have a couple of questions:
Question #1:
If the trust buys a second development site, funded partly by the profits from the sale of two units from the first development, I assume there is no profit to declare, and therefore no tax to pay (where second site is bought in same tax year as profits from first development). Is this correct?. Can this be repeated several times, with the trust retaining one unit in each development, and the profits from the sale of the remaining units going towards the purchase of more development sites?.

Question#2:
I've read on occasions (incl in this forum) that setting up a second trust is a useful way to get more finance if the first trust runs into serviceability (or is it rent reliance?) problems. I'm puzzled as to how this can be accomplished. Doesn't the bank need to know the names of the individual(s) responsible for actually paying back the loan,and won't they be the same individuals in each trust (same trustees)?. Doesn't the names of the trustees appear on the loan application/offer documents?. Why would a bank look differently at a loan application from a second trust, if its enquiries indicate that the individual(s) responsible for paying back the loans already has a serviceability/rent reliance problem.

hope above makes sense.

regards

Pat


PS:
Dale, your Tax Battles manual is terrific.
 
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Reply: 1
From: Rolf Latham


Hi Patrick

The issue of setting up different entities for increased borrowing on a residential security basis relies commonly on non disclosure of exisiting guarantees.

I am sure there are ways to get around this. My experience though is that the assessor strips away the structures and looks at the deal transparent to the structures.

In many instances if you have given a guarantee it will be recorded on your PERSONAL craa file.

Ta

Rolf
 
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Reply: 2
From: Dale Gatherum-Goss


Hi Patrick


>I plan to set up a
>discretionary trust with my
>wife and I as trustees. Plan
>is to
>buy and develop a triplex site
>in the name of the trust, and
>sell two/retain one
>for rental. The intent is that
>my wife, who is a non-income
>earner, will be the main
>beneficiary of any trust
>profits or income.


Terrific!!


>I have a couple of questions:
>Question #1:
>If the trust buys a second
>development site, funded
>partly by the profits from the
>sale of two units from the
>first development, I assume
>there is no profit to declare,


Why do you assume this?


>and therefore no tax to pay
>(where second site is bought
>in same tax year as profits
>from first development). Is
>this correct?.


If you are developing properties, then the purchase of another block will not necessarily reduce your taxes because the land is still unsold at the end of the year and so is "added back" for tax reasons.

Bottom line is not a tax saving.


>Can this be
>repeated several times, with
>the trust retaining one unit
>in each development, and the
>profits from the sale of the
>remaining units going towards
>the purchase of more
>development sites?.
>


Yes, but, I think you will find the there is tax first.


Have fun

Dale
 
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