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Can a trust have an offset account?

Discussion in 'Property Finance' started by AllyJ, 14th Aug, 2016.

  1. AllyJ

    AllyJ Member

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    Hi all

    Just trying to get my head around whether or not to purchase a $590k IP in a discretionary trust (which I have not yet set up).

    I was thinking to have the trust borrow 80% ($472k) and then stick the remainder of my cash in an offset against this.

    Being a complete trust newbie, it then dawned on me that perhaps the trust would then "own" my cash and would have to distribute it at the end of the year, which would expose it to tax again.

    So how does a trust have an offset account? Can I own an offset in my name that offsets the loan of the trust?

    Thanks
    Ally
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Yes the trust can have an offset

    No the offset can not be in personal name - it must be the same entity as the loan

    ta
    rolf
     
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  3. God_of_money

    God_of_money Well-Known Member

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    Not all banks offering offset account for trust
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Indeed and not all lenders offer offset accounts period

    Ta
    Rolf
     
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  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You should seek advice on the consequences of just putting your personal money into the bank account of a trustee too.
     
  6. AllyJ

    AllyJ Member

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    I see thanks Terry, I most certainly will. There is clearly more involved with this than I thought. I had assumed I could lend the money to the trust with me as either the trustee or the sole director of the corporate trustee.

    My thinking came unstuck when trying to work out how a trust could hold my money in an offset acc without distribution (or highest marginal rate taxation).

    Thanks
    Ally
     
  7. AllyJ

    AllyJ Member

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    Thanks very much Rolf. That makes sense re the name of the loan, but can a discretionary trust hold these funds in the offset without requiring distribution each year?

    Thanks
    Ally
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Not sure what you mean. A trustee could borrow money and keep that money it a trust bank account including an offset account without needing to distribute it - it is not income.

    But if you are both the lender and the borrower (trustee) then the question is can you contract with yourself?
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it could be possible.
     
  10. AllyJ

    AllyJ Member

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    Ahhh I see thanks Terry that is the lightbulb moment for me, the trust is borrowing the money that is in the offset account, as well as the money for the deposit on the IP.

    Good question about contracting with myself, I suppose a corporate trustee would add a different individual to the equation wouldn't it?

    Ally
     
  11. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    Do lenders take this loan into account when determining borrowing capacity?
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes. If it is declared properly it would be a debt.
     
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  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Trusts also have to worry about the usual issues with borrowing money and parking in an offset. Tax issues such as deductibility of interest and mixed loan issues.
     
  14. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Trusts are generally treated as an extension to personal borrowings in resi lending - so they'll need to be taken into account and vice versa for borrowing within the trust, your other personal liabilities will be taken into account.

    As others have mentioned - offset accounts are definitely available for trust lending, as always its a case of picking the right lender who will take the type of trust and allow offset facilities.
     
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  15. Daniel Taborsky

    Daniel Taborsky Well-Known Member Premium Member

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    So is it better for servicing purposes that cash be injected into a trust as an equity contribution (rather than as a loan)?
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes. Better from a servicing pov. But it all depends on the source of the funds. If the person behind the trust is borrowing the funds and they are giving or lending it should work out the same if they are the person giving the guarantee.

    Of course many would not declare the loan to the bank but this could come back and bite someone's arse if there is some sort of dispute as this could be used as evidence that there was not loan.
     
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  17. AllyJ

    AllyJ Member

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    I see, but if you were injecting cash into the trust and there was no loan this would be worse for servicing? Is that because the borrowing capacity of the trust is maintained (no loan)?

    I've read in one of your Tax Tips Terry that it is sometimes an option to use cash as a security for a loan in order to borrow deposit plus costs. In light of the above discussion, wouldn't it be preferable to simply loan the trust the cash instead of involving banks/term deposits etc and tying up the cash?

    Ally
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you have cash and loan it to the trust the trust has a debt which must be taken into account when assessing serviceability.

    If you gift the cash to the trust then there is no debt so it wouldn't affect serviceability.
     
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