Which name this time?

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From: Julie H


My husband and I are about to purchase our 6th IP and up till now all the previous IP's have been put in his name.
Should we now consider placing the next acquisition in my name or both?
From a tax standpoint my husband falls into the 30% tax bracket and I'm usually in the 17% bracket. As we are self-employed,our income fluctuates from year to year so this can change.
From a land tax point of view it may be better to put the next property in mine rather than my husband's , however, our land tax liability is relatively small thus far
and is a tax deduction any way.
Can anyone suggest the best way to go?
 
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Reply: 1
From: Glenn Mott


Hi Julie,

It sounds as though you and your husband have done pretty well to get to 6
ip's...WELL DONE! Have you thought of speaking with your accountant about
your investment structure?

Regards

Glenn

-----Original Message-----
From: propertyforum Listmanager
[mailto:[email protected]]
Sent: Friday, 30 August 2002 10:49 AM
Subject: Which name this time?


From: "Julie Hulbert" <[email protected]>

My husband and I are about to purchase our 6th IP and up till now all the
previous IP's have been put in his name.
Should we now consider placing the next acquisition in my name or both?
From a tax standpoint my husband falls into the 30% tax bracket and I'm
usually in the 17% bracket. As we are self-employed,our income fluctuates
from year to year so this can change.
From a land tax point of view it may be better to put the next property in
mine rather than my husband's , however, our land tax liability is
relatively small thus far
and is a tax deduction any way.
Can anyone suggest the best way to go?



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Reply: 1.1
From: Julie H


Have just spent the last week trying to pin down my accountant to answer my question, without any luck.
Consequently, am looking for a new accountant.
 
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Reply: 1.1.1
From: The Husband


Julie

What will happen when you both retire and your husband is getting all that positive income?

Have you considered setting up a trust? It makes it much more flexible and is safer for your assets!

TH
 
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Reply: 2
From: Geoff Whitfield


I'd certainly recommend a family (discretionary) trust. My understanding is that income can be distributed to any beneficiaries of the trust as the trustee's discretion- so if circumstances change, you can change who gets the money.

Dale G-G's "Tax Battles" manual opened my eyes to this- thanks Dale.

If you have children, you can pay them a small amount as well- there is a limit, I thought around $1600 pa. That way they can get their pocket money in pre-tax dollars.
 
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Reply: 2.1
From: Mike .


Hi Julie,

I don't think this question warrants an accountants opinion. It's very straight forward. Land tax, as you said, is a tax deductible expense as are things like mortgage interest, council rates, property management fees etc. All of these expenses are offset against the rent. If the rent doesn't cover all these expenses you are negatively geared and can offset the loss against other income. If that is the case, then it's best if the highest income earner claims those expenses in his tax return. To do that he must own the properties.

However, a time will come when you decide you have enough properties and will stop buying more. Eventually the rents will cover the expenses and the difference will be taxed at the highest income earner's rate if he owns them all.

If that occurs you need to have your husband transfer an interest in the properties to you. The title will have to be changed from single ownership to joint ownership, preferably as tenants-in-common. This will allow you to adjust the percentage of ownership to minimise your tax liabilities.

Transfer of an interest between spouses shouldn't incur stamp duty or capital gains tax.

Regards, Mike
 
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Reply: 2.1.1
From: Dale Gatherum-Goss


Hi Mike


Whilst I agree with your reasoning, I'm sorry to put a dampener on your enthusiasm, but, a transfer between spouses will attract CGT unless there is a family court order to do so.

Stamp duty will depend upon each state or territory, but, may also prove to be a problem.

This is one of the reasons why I like the idea of trusts because you retain the flexibility to give the positive income to whomever you like and pay the lowest rates of tax possible.

Dale
 
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Reply: 2.1.1.1
From: Andrew D


As a clever man told me once...set up now what you will need/use tomorrow. Thanks for the advice Dale.
Enjoy
AD

"The grand essentials of happiness are: something to do, something to love, and something to hope for."
-Allan K. Chalmers
 
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Reply: 2.1.1.1.1
From: Richard Hunt


Julie,

There are a lot more questions to answer before you decide which way to jump on this one. Here are a few:

1. Will the property be positively or negatively geared?
2.What value do I put on asset protection?
3.Are my other IP's positively or negatively geared?
4.What is the extent of the unrealised capital gain on my other IP's?
5.Do we have any capital losses to offset against any capital gain we make on any transfer of existing properties to a trust?
6.Is there a strategy for minimising any CGT if we choose to transfer IP's to a trust?
7.Do I plan to hold IP's long-term in retirement?

Go and hunt down that accountant and start the interrogation!

Regards
Richard
 
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Reply: 2.1.1.1.1.1
From: Anonymous


Hi all,

I'm yet to do my reading about family trusts. Therefore, this question may sound a little ignorant, but anyway....

What would be the problem with not using a trust until one has retired? Is there a large cost involved in transferring assets into a trust?

Cheers

Ethan
 
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Reply: 2.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Ethan

Absolutely enormous costs are involved in transferring properties to a trust. Capital Gains tax might be your biggest one followed closely by stamp duty on the market value of the property at the time of transfer.

Then, you can add legal fees for the transfer, accounting fees and possibly even bank fees to redo mortgages etc.

Start with the end in mind, as a famous person once said.

Dale
 
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Reply: 2.1.1.1.1.1.1.1
From: Ian Findlay


Dale,

It might be useful to at this stage to give the cost of setting up a new
trust from scratch. Then folks who want to set up trust then buy within the
trust know whats involved.

I know you've probably done it before but it doesn't hurt to help the
newbies like me.

Ian
 
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Reply: 2.1.1.1.1.1.1.1.1
From: Ethan Smith


HI Dale,
Yeh, I thought so. But like Ian said, I'm curious as to how much a trust costs to set up and maintain in the first place.

Thanks Dale

Ethan
 
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Reply: 2.1.1.1.1.1.1.1.1.1
From: Kevin Frey


Dale,

For those contemplating negative gearing, I'd presume a trust "gets in the way" of achieving that, wouldn't it?

Can the trust offset its "losses" from an investment property against an individual's income?

Kevin.
 
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Reply: 2.1.1.1.1.1.1.1.1.2
From: Dale Gatherum-Goss


Hi Ian Hi Ethan

A trust will cost about $2,000 to establish which will include stamp duty in your own state, the company trustee and the trust itself.

Each solicitor and accountant will charge different amounts depending upon who pays the stamp duty, and what they will do or that fee.

Ongoing costs will vary depending upon what you do with your trust and what type of records you keep. Say within $400 to $2,000 per trust. The government charge the trustee company abt $200 pa for registration fees.

I hope that this helps

Dale
 
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Reply: 2.1.1.1.1.1.1.1.1.1.1
From: Dale Gatherum-Goss


Hi Kevin

A traditional family trust will see the loss quarantined until such time as the trust makes a profit and at that stage, the losses are offset against the profits.

You personally get no tax advantage.

However, this is a short term issue and before long most negatively geared IP's become positively geared anyway with increased rents, reduced depreciation and interest paid (sometimes). At this stage, a trust will save you many, many dollars

Dale
 
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Reply: 2.1.1.1.1.1.1.1.1.2.1
From: Anonymous


Hi Dale,

Thanks for that. From you post it sounds like it is very important who you get to set the trust up for you. ie, you have to make sure it's an accountant/solicitor you feel very comfortable with and are going to stay with for the long haul. is that right?

Ethan
 
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Reply: 2.1.1.1.1.1.1.1.1.2.2
From: Geoff Whitfield


Dale,

Mine has just cost $660 (inc GST) to set up.

Have I done something wrong here? Or is there another expense which has not been charged to me yet?
 
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Reply: 2.1.1.1.1.1.1.1.1.2.2.1
From: The Husband


Geoff

Sounds like you have a trust with an individual as trustee. So you have no expense in creating a company as well. Also at that price, it probably didn't include applying for the ABN and TFNs? Mine cost $900 with ABN, TFN and some advice.

TH
 
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Reply: 2.1.1.1.1.1.1.1.1.2.2.1.1
From: Geoff Whitfield


It's individual as trustee. But it does include ABN & RFN.
 
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