Accounting question- set up a trust or buy as individual

Hi,

Currently own 3 homes, two are investment properties, the other is my home. I do however Airbnb this as I work away and have a house included in my package.

I am looking to purchase another property, complete a sub division and build another.

I have been reading, alot. Currently reading Steve McKnight 0-130. He mentions starting a trust, creating a company and making the company the trust benefitery. I discussed this morning this situation with my accountant. They could not see any benefit of doing this. I'm at a loss and looking for direction. The accountant mentioned that even if I purchase positive geared property, they would be able to utilise depreciation and other means to negatively gear it against my wage. Is this the case still? Advise anyone?

I also have a question regarding the subdivision, if I sub and sell the existing home for same/similar price. Do I pay capital gains as I've got the value of the block?

Thanks Nath

 

This is a legal question, nothing to do with accounting really.

Having a company as a beneficiary of a trust can be a good way to cap income at 30%, but if buying property there is not likely to be much income in the early years. Any capital gains would be better off going to an individual rather than a company because of the 50% CGT discount.

The first thing you should consider should be the land tax implications of a trustee holding a property as it could result in a large land tax bill - about $9,000 per year extra in NSW potentially.

If the land tax consequences are acceptable then keep digging into the other issues such estate planning etc.

 

I wasnt aware S Knight is a lawyer now. If not, its dangerous to follow the legal advice of someone who isnt allowed to practice law.

Simply put, a profit from a subdivision and sale isnt usually a CGT matter. And if it was a former home site definitely dont assume the main residence exemption is even available. Seek tax advice on your specific situation. Its explained in general terms in our developer toolkit. Factor the GST implications into the profit calcs and there may even be a loss. If retained may be a CGT asset. Depends and things like land tax etc are important to consider.

Laws will soon be passed that will deny deductions for holding costs while a site is being developed for later rent so understand this implication too.

 

Keep Steve's book in context. It's over 15 years old now. Things have changed across the board. Property markets, legal, tax, finance.