yes, we're looking again ... but due to past complications (that most of you know about) we have had poor structure setup in the past and even with my new accountant being on the ball, i don't know whether the advice really was the best for us .... so .... i'm after some opinions.
we're looking again in nsw because it's our backyard, we know it intimately and we have a great nsw team in place which will benefit us immensely in the long term.
but all our other properties are in nsw too, which leads to land tax problems. currently paying around $8k/yr but expecting that to go up.
currently we have one large ip property in both our names (ex ppor) which will already more than suck up our personal threshold. even tho it is still considered our ppor for cgt purposes for another 5 years, because it is rented we are supposed to pay land tax.
we have other ip properties held in two trusts so there is no threshold at all. the trusts were set up in anticipation of future cashflow positive income.
hubby is 7 years off minimum retirement age of 55 and has super dating back from inception, so can start drawing down on his unpreserved portion at 55 if he wants.
we want to "retire" from paid employment sooner rather than later.
we're looking at buying another 4-6 development sites over the next 3 years and have the property throw off around $200,000/yr within 6-8 years.
i'm wondering whether to proceed by buying each new development site in a new company - or in hybrid trust - or in personal names.
each has advantages and disadvantages.
- a separate company for each would mean no land tax bill, but initial losses couldn't be claimed against income. tax on profit would be limited to 30c in the dollar - but that would be from the first dollar, not on a sliding scale.
- hybrid trust would allow 100% losses to be claimed against the highest current income, and convert to normal discretionary trust when property is positive cashflow, reducing our tax payable when split over both of us on a sliding scale - but we would have land tax with no threshold. banks do not like lending to hybrid trusts so financing could be difficult.
- personal names would allow losses to be claimed and positive cashflow to be split reducing our tax, but again we would have land tax problems and could only claim 50% of the losses against the high income. but borrowing wouldn't be an issue
- we could buy in smsf, but that would mean we couldn't access the income until hubby hits 60 (assuming they don't change the laws in the next 12 years!) - and we want to be financially independent way before that.
i know trying to avoid land tax sounds silly - but with land increasing in value and no threshold with trusts, we'd be looking at around (in today's dollars) a bill of around $3,000/yr per development site. so, prior to retirement, if we have 7 sites it will cost us $21,000/yr - and - once we sell down to clear debt if we have 5 sites (4 townhouses per site) at retirement we'd be looking at an annual bill of $15,000 - or the entire rent from one property - every year.
... but ... on the other side ... it would be tax deductable and we'd have the entire rent from the other 19 townhouses as taxable income - and once depreciation deductions are bought into play ...
hmmm - this was a good exercise to work thru. i think i'm leaning towards the hybrid trust structure, even if the land tax in the short term will be painful and we've had potential financing problems. it does mean we can claim full losses to offset and eventually would end up with a better structure for retirement.
land tax was supposed to be abolished when gst came in - wonder if anyone remembers that!?
i'm am fully open to comments, criticism, stories and advice ...
we're looking again in nsw because it's our backyard, we know it intimately and we have a great nsw team in place which will benefit us immensely in the long term.
but all our other properties are in nsw too, which leads to land tax problems. currently paying around $8k/yr but expecting that to go up.
currently we have one large ip property in both our names (ex ppor) which will already more than suck up our personal threshold. even tho it is still considered our ppor for cgt purposes for another 5 years, because it is rented we are supposed to pay land tax.
we have other ip properties held in two trusts so there is no threshold at all. the trusts were set up in anticipation of future cashflow positive income.
hubby is 7 years off minimum retirement age of 55 and has super dating back from inception, so can start drawing down on his unpreserved portion at 55 if he wants.
we want to "retire" from paid employment sooner rather than later.
we're looking at buying another 4-6 development sites over the next 3 years and have the property throw off around $200,000/yr within 6-8 years.
i'm wondering whether to proceed by buying each new development site in a new company - or in hybrid trust - or in personal names.
each has advantages and disadvantages.
- a separate company for each would mean no land tax bill, but initial losses couldn't be claimed against income. tax on profit would be limited to 30c in the dollar - but that would be from the first dollar, not on a sliding scale.
- hybrid trust would allow 100% losses to be claimed against the highest current income, and convert to normal discretionary trust when property is positive cashflow, reducing our tax payable when split over both of us on a sliding scale - but we would have land tax with no threshold. banks do not like lending to hybrid trusts so financing could be difficult.
- personal names would allow losses to be claimed and positive cashflow to be split reducing our tax, but again we would have land tax problems and could only claim 50% of the losses against the high income. but borrowing wouldn't be an issue
- we could buy in smsf, but that would mean we couldn't access the income until hubby hits 60 (assuming they don't change the laws in the next 12 years!) - and we want to be financially independent way before that.
i know trying to avoid land tax sounds silly - but with land increasing in value and no threshold with trusts, we'd be looking at around (in today's dollars) a bill of around $3,000/yr per development site. so, prior to retirement, if we have 7 sites it will cost us $21,000/yr - and - once we sell down to clear debt if we have 5 sites (4 townhouses per site) at retirement we'd be looking at an annual bill of $15,000 - or the entire rent from one property - every year.
... but ... on the other side ... it would be tax deductable and we'd have the entire rent from the other 19 townhouses as taxable income - and once depreciation deductions are bought into play ...
hmmm - this was a good exercise to work thru. i think i'm leaning towards the hybrid trust structure, even if the land tax in the short term will be painful and we've had potential financing problems. it does mean we can claim full losses to offset and eventually would end up with a better structure for retirement.
land tax was supposed to be abolished when gst came in - wonder if anyone remembers that!?
i'm am fully open to comments, criticism, stories and advice ...