Joint Tenants or Trust for investment

Hi all,

My partner and I currently own (mortgaged) our PPOR. We purchased the PPOR as joint tenants (or at least I think that is the right term - we are both on the title)

We are looking at buying an investment property and trying to figure out the best way of structuring it.

Based on my research I understand that a property trust is the best way to go about this as if there is a tax loss we could offset it against whoever has been working for a year or whoever has the higher income with kids potentially in the future this would be an advantage. I understand there are disadvantages as well.

However our plan is eventually to turn our PPOR to an investment as well and my understanding is that any tax loss in the trust cannot be written off against the PPOR or vice versa. I am trying to get my head around whether this is a bad thing or not. I have tried to find articles on people who have bought their first home as joint tenants and then what structure they have used for their investment property.

Was hoping to come here for some guidance or advice.

Thanks for your time

 

How do you think a property trust (whatever that is) works?

 

You need specific legal advice on ownership structure. Trusts are separate taxpayers and cannot distribute losses.

 

You need to consider at a minimum:
1. Asset Protection (are either you at risk);
2. Ability to distribute profits vs inability to distribute losses;
3. different land tax thresholds (varies between states).

For many, if not most, PAYG earners trusts are not a great way to hold their first investment property.

 

What state are you buying in? Each have different land tax thresholds and rules.

For the states I've bought in I'd never ever buy in 2 names. Was either one of our names or trust.

Most people over complicate it. I'm betting neither you or partner are in high litigation risk industries?

 

@F1001 I think you really need to get some qualified advice on different types of trusts. Most trusts can't assign losses to the controlling parties as you describe. Those (few) that can have some very significant restrictions which can make them unworkable for investors. Most people I've encountered with these types of trusts have eventually unwound and shut them down.

IMO probably the two biggest things against trusts would be:

1. Restrictions on lending. Discretionary and unit trusts are no big deal. Not all lenders will deal with them, but there's plenty that will. The more creative trust structures such as Hybrid trusts have almost no lenders that are willing to deal with them.

2. They're expensive. Depending on an number of variables, you might loose somewhere between 5% - 30% of the trusts income in various costs which would be avoided if the property were held by individuals.

 

If a trust incurs a tax loss the tax loss is carried forward for future years. In certain circumstances the trust can then recoupe the tax loss.

There are some exceptions like a person who borrows to buy in a unit trust; but typically you lose the flexibility to distribute income to persons at the trustee discretion.

I think you should obtain more information before starting.

 

No trust can distribute losses.