Hello, I am looking for advise on structures for property development projects and in two minds about what is the right thing to do. Company structure (Company owning the property) i.e. Me and my business partner take directorship and loan on company name. Our individual family trust will fund the company and profits from our company when we sell few properties will be sent to family trust. At the moment we are not decided if we want to sell the properties or hold at least 1 property to keep it positive geared. I understand that we will be taxed at 30% on profits. 1. If we decide to hold 1 property then rentals from the property will be sent to family trust and finally to us and since we both are in higher tax brackets we will end up pay 47% of tax on the additional funds being received. 2. If we end up selling all properties, same as above applies for the earning for the year. TRUST: Company is trustee and we buy property under Unit trust. Our individual family trust will fund the property unit trust and profits from our unit trust will be sent to family trust. I understand that we will be eligible for 50% CGT exemption if we hold 1 Unit for couple of year time. But again I dont know what will be the real benefit: 1. Issues with getting loan under Unit structure. Brokers tell me its tough now days to get loan under unit trust. 2. End of the day for what ever positive cash flow we receive from Unit trust to family and finally to us will end up being taxed at 47% highest margin based on our current pay scales. 3. Higher SRO taxes for the ownership under unit trust which will take away the positive gearing aspect hence not making it profitable to hold the property. 4. If I end up selling all the properties, there is not much benefits anyway. Any other issues about holding in unit trust ?? Thanks
Your question implies that the answer is one or the other. Their could be an option to do a deed of partitioning so you do both and get the best of both worlds - or use a discretionary trust depending on your objectives.
heaps of issues to consider other than the tax aspects. Have a look at some of my tips in the legal section. If you do decide on either of the above, you then have to decide how to structure the structure - company shareholdings, shareholders agreement, constitution, trustee, appointor, beneficiaries, capital v income beneficiaries distintion, terms of the trust, succession on incapacity or death, potential for losing control of the trust, asset protection on the trustee being attacked, on the beneficiary bankruptcy, family law issues, etc etc. Ross mentions partitioning, this could be worth considering with 2 trustees owning tenants in common and then ending up with one block each. That way you are not tied together if you decide to keep.
If I was developing a site (say a duplex) where one property was going to be my PPOR and the other an investment, can I use a deed of partition to acquire and develop the site and we each end up with one each?
Who or what entity holds the shares or units? Units and shares are assets that creditors can get their hands on. You don't want to be in partnership with a liquidator
