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Advice on structuring property development vehicle

Discussion in 'Accounting & Tax' started by jazeng, 2nd May, 2016.

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  1. jazeng

    jazeng New Member

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    Hi all

    I am currently considering setting up a property investment venture so was hoping to brainstorm a few things regarding how I hypothetically would /could structure a project. I have also started asking a local accountant w/ regards to this matter but not sure if they are specialists in this area, so if you do know an accountant that is familiar with these issues then please do recommend to me.

    The hypothetical project is for 10 units to be constructed, through which i will be entering with Partner B for 50% each via a unit trust which I will share with Partner C, giving me 25% ownership of the project. The unit trust would have a corporate trustee to limit any liability.

    Rationale: The rationale for the unit trust is to pass through the CGT Discount 50% allowed for trusts. (I am under the impresison that having a corporate trustee does not affect this)

    My share of the unit trust will be held through a family trust (discretionary) comprising only of family members, and an incorporated company with family members only as shareholders. There will also be a corporate trustee for this family trust.

    Rationale: Rental income derived will be put through to the company and held in retained earnings until it is decided how to distribute, which will be franked on distribution to family members. IF we do decide to sell the properties eventually, then CGT gains will be distributed to family members to take advantage of the 50% pass through CGT discount.

    I was hoping to get a bit of insight onto whether

    a) this structure would work
    b) there are any potential pitfalls i have imssed
    c) whether any of the corporate trustee levels i have used can be eliminated to reduce costs

    Thanks in advance!
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  3. jazeng

    jazeng New Member

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    Sorry forgot to mention, it will be financed via loan at the unit trust level, via corporate trustee (director is a beneficiary). Not sure if this changes anything.

    Thanks Jacky
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    So there will be a company owning the land as trustee of a unit trust.
    Partner B will own 50% of the units
    For the remaining 50%
    Partner C will own 50% of these units with your family trust owning 50% of them
    Is that 25% each or 50% tenants in common?

    What happened to partner A?

    Who will be the director of the company owning the land and who will be the shareholders and guarantors of the loan? What terms of the unit holder agreement?

    Will the trustee land owner keep all units?
    Have you considered land tax? What if B wants to keep some but you want to sell?
     
  5. jazeng

    jazeng New Member

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    Thanks for replying, its been helpful to me in thinking this through- Partner B's tax structure is something i am not privy to at this point, so i can't really comment but i imagine it is similar. A deed of partition was planned to be arranged so that 5 units get split into the unit trust and 5 to Partner B on completion, so partner B is free to sell after that.

    Director of the company owning the land will be Partner C (25% effective holding on the investment, same as me). All beneficiaries (i.e me and Partner C) are able guarantors of the loan. Land tax will just be split in proportion.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Land tax with unit trusts could mean unit holders are personally liable.

    Don't forget to consider what happens if one of the group dies or loses capacity - directorships, shareholdings, appointor positions etc.

    And family law - not much you can do about this but a renegade spouse of one party could effect all of you.
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Terms of trust need to be carefully considered to ensure a investor cant demand redemption OR dispute the basis, timing and valuation of units. This may also need to consider relevant state land tax and stamp duty laws if its NSW property. Changes to unitholdings can have duty impacts.

    The lender will likely require parties A, B and C to also be Directors of the Trustee and the voting and control issues need advice (legal). Tip : Terry may be a good source of advice and he can address loan issues and legal issues.

    Tax advice on partition ? Its subject to GST.