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Am I getting too smart by a half?

Discussion in 'Property Finance' started by Blacky, 15th Jan, 2016.

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  1. Blacky

    Blacky Well-Known Member

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    I am looking at making a purchase through one of my Trusts (discretionary with corporate Trustee). Due to the lender requirements I must take out the loan in my own name - secured by the trust assets.

    So - I borrow (say) $100k. Interest at 5% = $5k/pa.
    I then lend to the Trust $100k.
    The Trust generate income of (say) 5%. = $5k.

    If I charge the Trust interest at 5% I have neutral income. The Trust has a $5k deductible expense(?).

    If I dont charge interest to the Trust - is the $5k interest to me non-deductible? Or does the ATO view this as tax evasion/dodgyness? Or do I get $5k deductible cost - albiet the Trust has higher income.

    What if I dont make a loan to the trust - but rather provide a cash injection?
    Is the loan in my name deductible?

    How do I make sure this is all legitimate? Or am I over complicating something which should be quite simple?

    Blacky
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    I'd say no, because then your loan in your name is no longer for investment purposes.
    Get a loan document written up between Blacky and Blacky Trust that spells out the terms.
     
  3. JacM

    JacM VIC Buyer's Agent Business Member

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  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You mean the trustee of a trust which you are a beneficiary of is looking to purchase.


    Doesn't seem like a commercial transaction. Take care with deductibility of interest.


    No


    You are under complicating it. You should set up a commercial loan written agreement or otherwise get a private ruling (or take a punt). Considered the other aspects? Estate planning, asset protection etc.

    I must say that I have never seen a requirement like this before. Most lenders would be adverse to third party loans such as this.
     
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  5. sanj

    sanj Well-Known Member

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    How can the loan be in your name when you don't own the security?

    I can understand/expect u guaranteeing the loan but this arrangement seems odd
     
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  6. D.T.

    D.T. Adelaide Property Manager Business Member

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    My loan is in my name, i used the bank's funds to buy units and the trust used those proceeds to buy the property. This was for a unit trust though.

    Hard to see why they'd do that for a discretionary trust though.
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Its quite normal for both unit trusts and HDTs.

    It can provide for neg gearing of the trust purchase, since the borrowings are in personal name, the trust has no loan and distributes net of expense but pre interest income to the borrower.

    Borrower then offsets the rental income with that interest

    Pls see personal tax advice

    ta

    rolf
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  9. sanj

    sanj Well-Known Member

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    Yeah that's unit trusts, this is a discretionary one
     
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  10. MTR

    MTR Well-Known Member Premium Member

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    We did this for our US properties, we got lawyer to sort out document for loans. MTR is the bank who then lends to MTR trust @ 10%. My US/Australian account deal with the rest
     
  11. Redwing

    Redwing Well-Known Member

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    Doesn't have to be 'commercial rates' (US)?
     
  12. Blacky

    Blacky Well-Known Member

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    It is because "my Trust" (or as TerryW accurately describes - the trustee of the trust which I am a benificiarary of) doest currently own anything...or generate any income.

    Therefore they want me to be the borrower, with security provided by the Trust(ee) (probably including a guarantee).

    Estate planning/asset protection is the consideration for using the Trust. Trying to divest away from owning everything in my own name. Plus allowing me to distribute profits(loss) to other people/entities being secondary.

    Just need to figure out the best way to go about to ensure Im not breaking any rules or raising red flags.

    Blacky
     
  13. D.T.

    D.T. Adelaide Property Manager Business Member

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    Would prob find another lender would allow it and just have yourself as guarantor ?
     
  14. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    It should be the other way around if discretionary. The trust is the borrower, you're the guarantor. Pretty standard stuff.
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This is most unusual. I have never seen this happen. Who is the lender?
     
  16. Blacky

    Blacky Well-Known Member

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    Westpac...
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    that might be why. Trust borrowers need to go through the commercial section of westpac, but maybe still treated as residential.

    I would not proceed on this basis, but have the trustee borrow with your giving a personal guarantee.
     
  18. Blacky

    Blacky Well-Known Member

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    Thanks Terry. I have spoken to other lenders who can probably do the deal, but are quoting a much higher rate (1-2% premium). Its not a huge loan I am looking at, so may still be worth while.

    Cheers

    Blacky
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Westpac should be able to do it too, at same rate.
     
  20. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    That does seem weird. You should just be able to do it in the Trustee/Trust with you giving a Directors Guarantee.