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Buying property under a trust - financing

Discussion in 'Property Finance' started by scientist, 26th Nov, 2015.

  1. scientist

    scientist Well-Known Member

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    If I buy a property under a family discretionary trust, how is finance usually structured? The trustee is a company and I'm the sole director.

    Here are my imagined choices, please tell me which one is most common and why:

    1) borrow under the trust, personal guarantee from me and / or wife to achieve serviceability. Interest is deductible only against property income - losses trapped in trust.

    2) borrow under my own name or both me and my wife's names, interest cost is attributed to me or us personally

    It seems option 2 is more flexible because the losses aren't trapped in the trust - am I incorrect here? Do banks allow this structuring or is it a bad idea for some reason?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You won't be buying under the trust, but the trustee company will be buying the property in its capacity as trustee. The company should be applying for the finance (as trustee). With a personal guarantee by the director. Keep your wife well away for asset protection and servicing reasons.

    If trustee owns the property only the trust can claim expenses.

    Under scenario 2 the interest would not be deductible.

    see Legal Tip 91: Structuring a Trust to Maximise Borrowing Capacity
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Why are you looking to buy in a DT ?

    ta
    rolf
     
  4. scientist

    scientist Well-Known Member

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    Thanks Terry that makes perfect sense

    We hit our land tax thresholds in NSW already and want to buy another in Sydney

    so may as well do it under a DT for asset protection

    any downsides to consider?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    terms of the trust and structuring the trust
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Not my area, but a DT wont get a new threshold in NSW ?

    ta

    rolf
     
  7. Marty McDonald

    Marty McDonald Mortgage broker

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    1. Less lenders to choose from
    2. Not as sharp pricing
    3. Some potential issues with servicing ie no negative gearing.
    That all said none of these are necessarily reasons not to do it. Still lots of options available..
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If buying in Sydney I'd suggest no neg gearing is a pretty big disadvantage!
     
  9. See Change

    See Change Timing Lord Premium Member

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    Trusts in NSW have no tax free threshold , so you pay land tax from dollar one .

    No benefit .

    Cliff
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It seems scientist has already used up his land tax threshold already so he is going to pay the same land tax whether in own name or a trust.

    Maybe consider a company if you want another threshold.
     
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  11. scientist

    scientist Well-Known Member

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    Always one to point out fresh ideas! I'll look into this thanks

    Didn't know companies get new threshold...
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    i think I have written a legal tip on it!