Over Optimisation of Structures, trusts that are not workable in real life

Discussion in 'Loans & Mortgage Brokers' started by Rolf Latham, 30th Jun, 2020.

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  1. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Got a couple these recently where the tax and legal advice has not taken into account that these things might want to borrow.

    Client doing a decent size development, and has been advised for various tax reasons to structure as below

    • Appointor = not blood relative of servicing guarantor
    • Sole dir = another not blood relative of servicing guarantor
    • Sole Shareholder = same as sole director
    • Named benifiacaries exclude Servicing guarantor.


    Now the advisor is concerned that we are having trouble with mainstream funding.


    No derived or implied benefit for the guarantor....................

    ta
    rolf
     
    Rolf Latham, 30th Jun, 2020
    #1
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  2. Paul@PAS

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

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    Legal advice v credit
     
    Paul@PAS, 30th Jun, 2020
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Agreed, happens a lot with accountants. structure advisers and financial planners, with our clients its about 1 in 10 where the recommendations have appeared from a credit advice vacuum, with nil consideration as to implementing the advice.

    To make that more fun, they then suggest my clients seek the services of a more creative broker :)

    ta
    rolf
     
    Rolf Latham, 1st Jul, 2020
    #3
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  4. MC1

    MC1 Well-Known Member

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    Good way for accountants to make money
     
    MC1, 1st Jul, 2020
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  5. Terry_w

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

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    Accountants shouldn't be setting up trusts any way. Best to use a lawyer and one that knows the lending space.
     
    Terry_w, 1st Jul, 2020
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  6. Paul@PAS

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

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    Everytime I discuss merits and issues with trusts I bring in credit issues and legal issues which often can prevail. Its fine to suggest a trust but you can find less lenders, more issues, different rules etc. The annual costs as well as upfront costs further factors. Some of the fatal elements why a trust could be a poor choice :
    - Loss making property for tax purposes
    - Single person no apparent beneficiaries excepting themself
    - Unstable residency issues (they plan to go overseas)
    - Cost
    - Complexity and a thorough lack of understanding (or bamboozlement by a adviser selling a polished turd)

    The whole chain also needs to be considered. I had a client from a well known tax adviser who is supposed to be solid on trusts. The unit trust bought a new apartment that had large depreciation and cap allowance deductions. Units in that trust owned by a disc trust. That disc trust borrowed to buy the trust units. So there was no neg gearing and losses just accumulated. Same client also had another trust and another property setup same way. And it owned NSW property but it was neutrally geared. So no land tax threshold. $11K a year in land tax gets assessed and it also ended up with accumulated losses. They paid $10K for advice and 4 companies and 4 trusts and $2K a year in extra tax work to do something badly.
     
    Paul@PAS, 3rd Jul, 2020
    #6
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