Buying in a Trust

Question for Brokers:

I have been advised by my accountant to set up a discretionary trust to purchase property in.
The structure will be a discretionary trust with a corporate trustee, and the trust is the single shareholder of my company.

The reason for this is because I currently don’t need the money coming into my company (approx $100k py) as I have a separate salary from a different job - the idea being the trust will be a better vehicle to invest the company funds in than buying in the company. The trust also allows for better distribution of the profits obviously..

The point of contention is whether I will be able to access personal loans for the investments, or whether it will need to be corporate loans?

I will be the guarantor for the loans.

Thank you in advance!

BB

 

warning warning!
Get legal advice.

With trusts it is the trustee that borrows money. You could get personal loans for the investments but you couldn't claim the interest unless you had a fixed entitlement to all the income. If the company as trustee borrows to invest it will be the trust that claims interest.

 

See all of my legal tips on trusts - esp Legal Tip 91: Structuring a Trust to Maximise Borrowing Capacity

 

Hi BB

Agree with @Terry_w seek legal advice to be sure you are 100% clear on what the procedure is here. Not everyone benefits from purchasing through trusts when it comes to property.

Another issue to be aware of (that not all first time trust owners are) is land tax. If buying a property in NSW via a trust you are not exempt from the current land value threshold (which is $482K). This means that you pay 1.6% of the land value content annually (and increasing as the land value rises) from $0, unlike personal name buying. More info here Land tax | Office of State Revenue

 

Thank you Terry and Jacque,

I was aware that it is the trust that claims the interest, I was not aware however that a discretionary trust is not except from the land tax threshold in NSW.

Is this the same in every state? I was looking at purchasing in QLD..

 

Land tax is state law and every state differs.

 

Hi Blind Bull

You have to love Qld

Trustees

In Queensland, trust land is registered in the name of the trustee. If your assessment includes both trust and non-trust-owned land, or is not assessed at the rate for trustees.

As a trustee, you are liable for land tax if the total taxable value of the freehold land held for that trust is $350,000 or more.

You may be able to apply for exemptions to reduce your total taxable value.

When calculating your total taxable value, we will not add the value of land held for one trust to the value of any other land you hold as:

• trustee of another trust, unless it is a cloned trust
• an individual or company

Cheers


Richard

 

Thank you Richard! Where else but Queensland!

 

SA, WA and NT