Unit Trust Tax Finance Structure

[Melbear]

Hi everybody

I'm hoping for some information on how to improve my situation.

At the moment I have a unit trust that only owns one property in Sydney. The Trustee Co borrowed the funds to buy the property and I have to pay the shortfall of some $4K per month. As the trustee borrowed the money I cannot claim the negative gearing which is a huge drain.

The unit trust, inclusive of the bank loan to buy the property, and what it owes me for the payments I have made, is in a negative equity situation.

I was hoping to (re)borrow the bank loan in my own name, and then somehow transfer that to the units I have already?

I've done some research and think that if I cannot do it with my current structure???, that perhaps I can have the trustee redeem all outstanding units (they're all issued to me anyway) and then I could buy new units with my loan funds?

Noting that there is negative equity, does that mean that the units would have a zero market value for redemption?

Is this the right track to be going down? I'm at a bit of a loss at the moment.

 

[Aaron_C]

Please explain how this was structured again? Usually in this situation it is the director/beneficiary (i.e. you) who will borrow the money from the bank to buy UNITS in the unit trust, then the unit trusts uses that money to purchase the property. The Trustee does not borrow money in its own right.

 

[Terry_w]

The units would be collectively worth what the property is worth. The trust may have accumulated income losses.

You probably own the units and have been waiting for a distribution from the trust - which is unlikely to happen for many years it seems. Do you own the units or does a discretionary trust?

How have you been paying the short fall each month? Is this a loan to the trust or a gift? Sounds like it was loaned from what you have written.

If the units are owned by a discretionary trust then they could be sold to you, maybe, and you could borrow to buy them and then begin to claim the interest as a deduction.

If the trust is a fixed unit trust then you may also get the land tax exemption too.

But watch out for CGT and stamp duty.

Whatever you do you may want to wait until July 1 next year as stamp duty will be abolished on the transfer of units - currently it is 0.60%.

 

[Melbear]

Hi Aaron

The loan is actually in the name of the Trustee Company, with me guaranteeing the loan. When the trust was set up initially, my ex and I were both issued 200 units. There were none issued when the loan was taken out. I think that's the problem that I am now needing to fix.

 

[alexlee]

Interesting way of doing it. You would have known from day 1 that structuring it like that would result in losses trapped in the unit trust, not to mention you have to fund the loss yourself.

What exactly were you expecting to achieve with this setup?

 

[Melbear]

If the trust is a fixed unit trust then you may also get the land tax exemption too.

But watch out for CGT and stamp duty.

Whatever you do you may want to wait until July 1 next year as stamp duty will be abolished on the transfer of units - currently it is 0.60%.

I do get the land tax exemption, thankfully.

I'm not sure what you mean when you differentiate the value of the asset and the income. In the balance sheet of the trust, it lists assets and equity - and it's quite negative as it takes into account the loans outstanding vs the property value.

I'm sure I read in something that Chris Batten wrote that there would be no stamp duty on transfer of units in the unit trust in NSW.

 

[Terry_w]

I'm sure I read in something that Chris Batten wrote that there would be no stamp duty on transfer of units in the unit trust in NSW.

The govt promised to abolish stamp duty on the transfer of shares and units on 1 July 2012 but they have pushed this back a year now - next year they could do the same too.

What sort of value are you looking at for the property now and when you purchased?

 

[Melbear]

Interesting way of doing it. You would have known from day 1 that structuring it like that would result in losses trapped in the unit trust, not to mention you have to fund the loss yourself.

What exactly were you expecting to achieve with this setup?

I think you're giving me too much credit Alex.