Trusts and Negative Gearing

Reply: 2.1.1.1.1.1.2.1.1
From: Terry Avery


Hi again Robert

Thanks for that reply. Just on the bank lending side of things. It would seem incredibly lazy of the bank not to have a valuation done just on the basis of the “apparent” LVR being 50%.

If that was the case there would be nothing to stop me from buying an IP for $200k and flipping it to my trust for $400k with the trust borrowing 50% of the $400k (the $200k purchase price). I would then have obtained the property at market price with 100% borrowed from the bank. The legals and stamp duty would come out of my pocket. You could repeat this monthly or even weekly if you had numerous trusts and approached different banks. You would need a trust for each one because of the credit checks the banks do.

One further point. Just because many others are doing doesn’t mean the ATO may look unfavourably on the structure. Just look at the people caught up in the mass marketed schemes recently.

I look forward to any comments from Dale on this.

Cheers

Terry
 
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Reply: 2.1.1.1.1.1.2.2.1
From: Terry Avery


Hi Dale,

Thanks for that clarification. I apologise if my post seemed to imply that you may be breaking a law that was not the intent. I was just showing my lack of knowledge of that area of law which can be used. Often when one doesn't get it one asks questions as to the legality of something not in the sense of accusation but the sense of can that be done?

Thankyou for referencing the relevant legislation as I can now read it and think about the possibilities.

Cheers

Terry
 
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Reply: 2.1.1.1.1.1.2.2.1.1
From: Dale Gatherum-Goss


HI Terry

No problems, I'm sorry if I bit your head off. I'm tired and cranky today . . .

Keep asking questions, but keep an open mind.

Dale
 
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Reply: 2.1.1.1.1.1.3
From: Kim Heaver


On 3/13/02 1:01:00 PM, Robert Forward wrote:
> So your
>company trust owes you $150k,
>and in effect the first $150k
>that the company/trust earns
>can go straight into your
>pocket tax free as it is
>paying out the remainder of
>the "Principle" on the
>property.

Would it be the case that if the trust is receiving income from a company which has already paid the tax (franked), the trust is repaying principle which is not tax deductible so in effect the $150k is still being taxed. Or if the property is positively geared and the trust makes a profit it will still have to pay tax on the profit.
 
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Reply: 2.1.1.1.1.1.3.1
From: Dale Gatherum-Goss


Hi Kim

I'm afraid that I didn't quite understand your post so I'll try to guess at what you mean.

A trust that has income from a franked dividend still has to declare that income in it's tax return. The franking credit attached to the dividend can be used by either the trust, or the beneficiaries of the trust to reduce tax or create a tax refund depending upon the other circumstances.

If the trust has a loss from property or other sources, the loss can be used to offset against the dividend.

If the trust has positive income, then, the dividend is added to that income before distribution to the beneficiaries.

Depending upon your trust deed, that income might be able to be "streamed" so that different classes of income can go to different beneficiaries to create more tax effective results.

Does this help?

Dale
 
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