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Putting PPOR into family Trust

Discussion in 'Accounting & Tax' started by Xantham, 5th Jul, 2016.

  1. Xantham

    Xantham Member

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    Hi all, so I am putting my first property purchase into my newly made family trust, because after 1-2 years I will be using this as an IP. Is this the best way to go about it with regards to asset protection and drawing profits to my partner as a beneficiary who is on a much lower tax bracket than myself?

    I just want to make sure the benefits greatly outweigh just buying it in a personal name because it is such s pain in the neck actually getting the pre approval and loan into the trust , especially since the director of the trust is a shelf company.
     
  2. Xenia

    Xenia Adelaide Property Manager Business Member

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    If you are going to be using it as an IP then you will gain some benefits. If you are keeping it as a ppor, you will loose the capital gains exemption by putting it into a trust
     
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  3. Xantham

    Xantham Member

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    I will definitely be turning into an IP as soon as possible, then purchasing another, adding it into the trust as another IP. Probably my third will be my long term PPOR. I intend to accrue a few over the next 10 years so I figured a family trust would be the best way with a shelf company as the director for reasons of asset protection.

    I thought this would be the best way to go about it I just wish the finance approval part was easier. If he benefits weren't there I'd just count my losses in relation to the cost of setting it up ($1000) and put it in my personal name.
     
  4. BennEznElle

    BennEznElle Well-Known Member

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    Trusts can be useful in minimising the potential impact of CGT however, I find unless you have a seriously positively geared property or have a property in a trust with other assets like share etc. then the benefits are minimal as the losses get stuck in the trust.

    Really depends on what the purpose of the trust is, is it a tax minimisation vehicle or an asset protection vehicle in your situation? Certainly putting the PPOR in the trust will lose the main residence exemption and you will have stamp duty on transfer again, so often the cost of this is prohibitive.

    Maybe you would be better using the stamp duty concessions to transfer your PPOR to your spouse (not sure re stamp duty in Qld), then when it becomes an IP you will get your benefits. However again, if its going to be negatively geared long term, then you may lose benefits having it in the low income earners name.

    Need some advice from someone like Terry_W or MikeLivingTheDream who can run the numbers of the benefits and costs subject to what your mid to long term plans are.

    Oh and by the way, the trustee of the Trust will be your shelf company, and you will need to be directors of that.
     
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  5. wylie

    wylie Moderator Staff Member

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    Watch out for land tax. I'd stick with one house per trust. And the threshold for land tax is much lower in a trust, so one house in a good suburb will tip you over the threshold.
     
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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Have you had legal advice on this?

    There is more to asset protection then just having a trustee own the property.

    What profits will there be?

    Trusts don't have directors, they have trustees which could be a company. Companies have directors.

    Sounds like you are in dangerous territory.
     
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  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Generally full duty in QLD:
    Tax Tip 101: Transfers Between Spouses and Stamp Duty in QLD Tax Tip 68: Transfers Between Spouses and Stamp Duty in NSW
     
  8. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    especially since the director of the trust is a shelf company.

    OMG :eek:
     
  9. sanj

    sanj Well-Known Member

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    looking at your PPOR without emotion, is it a good investment going forward? ie would you choose to buy it as an IP? if not, the stamp duty you are going to incur would be better spent purchasing something else by selling your PPOR CGT free now and buying that more appropriate IP in whatever entity you deem appropriate. the additional cost would be your selling related fees/charges only and could be eroded in less than a year if the alternative IP is expected to perform better.

    you could also still potentially go ahead and purchase those other 1 or 2 IPs you're planning to.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Do you own the PPOR already? If so you would want extra legal advice on the asset protection implications of transferring it to a trust.
     
  11. Xantham

    Xantham Member

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    Awesome responses thanks guys, so clarification on a couple of things.
    Apologies, the shelf company is the Trustee, and I am the listed director on the shelf company. Big whoopsie in the explanation there.

    The property will likely be positively or neutrally geared as I am generally not a fan of negatively geared properties unless you are on a higher tax bracket (which I am not really on). I understand about the tax implications with regards to deferring losses to counteract profits in future years and not being able to get a direct benefit right away, another reason why negative gearing is not on the cards.

    The properties going into the trust are based on a buy and hold strategy, at least for 8-10 years (obviously dependent on the market and my own financial situation during this time). Once 8-10 years have passed I will likely consolidate, sell a couple and pay down debt to start to take advantage of higher positive cashflow and start to supplement some of my income with rental returns at this time.

    I do not own the/any property as I am still in the pre-approval process, which I have submitted through the trust, but I can change in the next week or 2 if it turns out to be better going into my own personal name (which at this stage I am unsure of/unconvinced). Effectively I would be buying a property (into the discretionary trust) with the intent to live in it for 2 years then rent it out as an IP.

    I hope that clears things up a little with regards to where I'm going with my original post.

    I have heard this, using 1 trust per property, my cousin is a chartered accountant who said this is not usually necessary. Isn't it a very expensive endeavour to keep purchasing a trust every time you purchase a new property, with regards to setup cost, then annual charges/fees? Is there really that much of a benefit setting up multiple trusts for multiple properties? I mean I am sure there are circumstances where the financial benefit would make it justifiable, but I am not too familiar with the maths involved here so I defer to the opinions of my betters here.
     
    Last edited: 5th Jul, 2016
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Sounds like Wylie's comment went over your head.

    In QLD a trust gets a land tax threshold of $350,000,
    Separate trusts can each get a separate threshold under some circumstances.

    The savings in land tax would generally exceed the cost to run a separate trust.
     
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  13. Xantham

    Xantham Member

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    Yeah as you wrote this, I was reading up on it (as it is not something I know a lot about). So basically when purchasing property number 2, I would have to look into the math at the time and calculate the land tax I would be liable to pay with the 2 combined.

    If it is more than the setup/annual costs of holding another trust, I would just create a new trust. If it wasn't, I would just put it with this original trust. I guess another thing to consider would be capital gains on both properties if they were in the same trust though right? So if in 5 years time both properties are worth significantly more, I would then be shooting myself in the foot and paying more land tax than had I have just gotten a separate trust for each property correct?

    If that is right, then I think I am starting to get it, so many thanks Wylie and Terry, extremely valid points I would need to consider when purchasing my second property (which is a couple of years off at least anyway).

    Back to the original question though, to put the property into a trust or not to. At this stage I am still leaning toward yes.
     
  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    [/QUOTE] I have heard this, using 1 trust per property, my cousin is a chartered accountant who said this is not usually necessary. Isn't it a very expensive endeavour to keep purchasing a trust every time you purchase a new property, with regards to setup cost, then annual charges/fees? Is there really that much of a benefit setting up multiple trusts for multiple properties? I mean I am sure there are circumstances where the financial benefit would make it justifiable, but I am not too familiar with the maths involved here so I defer to the opinions of my betters here.[/QUOTE]

    A unit trust should only ever hold one property. A discretionary trust has a far less impact. The reason is a CGT issue....

    Imagine a unit trust buys two properties for $100 each. A few years later one is worth $200 and the other worth $199. Which do you sell ?....Typically nobody likes CGT so you sell the underperformer. A CGT loss of $1 right ?? Wrong. The unitholder will trigger a capital gain on their units since the value of their units are now $1.75 v's a cost of $1. That would be avoided if there was just one property per trust. Also its impossible to transfer units and change beneficial ownership in one property - You would have a fixed ownership of two properties. Thats inflexible.
     
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  15. Xantham

    Xantham Member

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    I wouldn't use a unit trust, for that very reason. The trust I have is a discretionary trust, but I definitely now see the logic in holding multiple properties in multiple (discretionary trusts).
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    What about all the other aspects some of which are:
    - succession of control of the trusts on your:
    = death
    = incapacity
    = bankruptcy

    - inability to leave the trust assets via your will.
    = asset protection issues in death
    = no access to concessional tax treatment for minor children

    - stamp duty issues on changes to the trust

    - loss of the main residence CGT exemption and the 6 year rule.

    etc
     
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  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    And what are you trying to protect your assets from?
     
  18. Xantham

    Xantham Member

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    Litigation, the unknown etc. I know there is a lot to consider, I've looked into some of those drawbacks but not on a large scale. The house we intend to live in (purchase number 3) I would just purchase in my own name, or my partners or 50/50 (I guess I probably should look more into long term consequences, which is conveniently a good reason I'm in this thread and really appreciate your input). So would you say it is better to have properties just in your own name/your partners name and varying degrees (to minimise tax that way without using trusts), or would you have a combination of trusts/own name/partners name/other ways?

    I know generally it all comes down to individual circumstances, but given the goal is at 8-10 properties in the next 10 years at say an average value of 500k each, and then selling 2 maybe 3 after that time.

    My cousin who is a chartered accountant advised the discretionary trust avenue (she is in WA though and her clients are primarily in WA so certain difererences between WA and QLD may be influencing her opinion).
     
  19. thatbum

    thatbum Well-Known Member

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    Phantom litigation?

    Honestly just put your PPOR in your own name. Or even better, pay someone like Terry to give you real advice on what structure is better and why.
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You need specific advice as everyone's circumstances are different. The ownership of each property needs to be consider just before purchase and then you need to consider structuring the structure, funding the structure initially and ongoing etc.

    I guess there are 2 approaches to look at - the global strategic approach and then the individual purchases which are the more tactical aspects.

    Have you got a trust set up? Does it meet your needs? Do you know how to run it so that there is some asset protection?
     
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