Negative cashflow in trust

Discussion in 'Accounting & Tax' started by Jimnick, 2nd May, 2024.

Join Australia's most dynamic and respected property investment community
  1. Jimnick

    Jimnick Member

    Joined:
    10th Oct, 2020
    Posts:
    19
    Location:
    Adelaide
    I am sure I am not the only one who is experiencing losses from the increases in interest rates for IPs held either inside a trust or in personal name.

    I have two IPs in a family trust which is now generating a loss due to the increase in interest rates.

    I do not have negative gearing benefits but the losses are carried forward and will be utilised when the properties are sold or refinanced?

    The cash contributions are manageable but will hurt. Albeit a forced savings when profit when realised.

    I know there are eventually greener pastures with rents increasing and interest rate eventually coming down.

    There is no option of refinancing currently due to serviceability.

    I am looking for advice to help whether the storm and what others are doing in the same situation.
     
    Jello likes this.
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    42,561
    Location:
    Australia wide
    How is the trust funding the losses?
     
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,984
    Location:
    Sydney
    The matter of potential losses should have been consdered in the plan to use atrust. I can recall for YEARSI would caution clinets that the historical low interest rates were unlikley to be maintained and to consider the extent of trust gearing. Note that the accumulated tax loss in the trust can be later used to offset the discounted gain if a property is sold before the trust become positive with income so the tax loss does get deferred and isnt lost
     
  4. Jimnick

    Jimnick Member

    Joined:
    10th Oct, 2020
    Posts:
    19
    Location:
    Adelaide
    I planned to loan to money to the trust interest free unless there is a structure to set up which allows debt recycling.

    I need formal advice on this and am trying to find a someone who can provide so any suggestions would be good.
     
  5. Jimnick

    Jimnick Member

    Joined:
    10th Oct, 2020
    Posts:
    19
    Location:
    Adelaide
    Hi Paul,

    I was across the risk at the time but probably didn't think it would transpire quickly.

    On a positive it presents an opportunity to setup a structure to contribute to the trust in a tax effective manner and carry forwards losses which may help accelerate plans to pay off PPOR.

    I will need advice on this.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    42,561
    Location:
    Australia wide
    Do you have any non-deductible debt?
     
  7. Jimnick

    Jimnick Member

    Joined:
    10th Oct, 2020
    Posts:
    19
    Location:
    Adelaide
    I do. I have a PPOR loan.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    42,561
    Location:
    Australia wide
    well you might want to lend to the trustee at the same interest rate you are paying the bank by debt recycling.
    otherwise you are diverting funds from yourself to the trust.
     
  9. Jimnick

    Jimnick Member

    Joined:
    10th Oct, 2020
    Posts:
    19
    Location:
    Adelaide
    How would I structure this up with the PPOR loan Terry?
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    42,561
    Location:
    Australia wide
    That is something for the indvidual to take tax advice on. They may want to split the loan for starters