Right structure to develop property with siblings

Hi everyone,

First time poster here. My father and his business partner have been developing properties for a while and have offered to help my siblings and I develop our first property.

My question is what is the smartest way to structure ownership to provide flexibility to buy land, develop and then eventually sell a property, and then do this again (while also providing asset protection in the case anything where to go wrong). The plan would be to start with 1 property and then over time either increase the size of the property being developed or do 2 or 3.

My original thought was to set up a family trust, with a corporate trustee. We can then either all lend or gift the starting capital to the trust for its required working capital. I would make my siblings and I directors of the corporate trustee, and beneficiaries of the trust.

Has anyone used this structure? or is there a better way to set this up. Do you have any watch outs?

 

Wouldn't you ask your dad for his contacts, his team of professionals if he was doing this already?
Basically you wish to structure this as running a business instead of investing and assume you will have profit if you structure under the trust entity?
Structure is one thing but what about an exit plan for siblings in case they are in dire straight situation (being sued, divorced, bankrupt, etc....)?
I would seek professional advice....

 

Prob 2 companies worth looking at with appropriate shareholders - perhaps another company x 2 or trustees of 2 separate discretionary trusts.

There is no CGT discount on developments so the fact that a company doesn't get the CGT discount is irrelevant. Good asset protection. Land Tax savings potentially too and easy to lend to and get profits out.

Make sure you seek legal advice from a solicitor before setting anything up. Get some tax advice too.

 

This would not be good because
a) none of you has any 'share'.
b) whoever controls the trustee controls the profits
c) whoever controls the apppointor controls the trustee
d) You would not want to gift to the owner of a risky development.
e) making everyone director increases risk, but not being a director increases a different risk.

 

Using a unit or fixed trust could address that issue. Could you explain your raionale for your prior post on the 2 companies etc?

 

A fixed trust may have more land tax issues than 2 x companies depending on how they are structured. A fixed trust (NSW) may get a threshold BUT the unitholders are also assessed on the units shares !! The same doesnt apply to company shareholders.

A fixed trust with two properties may lead to double taxation. Tax advice would explain this functional problem with fixed trusts. Two fixed trusts may be wise if that works. They could (or not) have the same trustee company.

Nobody had mentioned land tax up to now.

Other considerations for structure include:
- Issues with land tax and land tax surcharges and existing property owned by the parties
- Borrowing and how the entity will be funded
- Liability of the parties to each other
- Director guarantees may affect who can be a director.
- Insurance/s
- Loan agreements ? and security issues. Is there a charge ?
- What occurs with profits ?
- Is any party seeking to retain any property ? (And what happens if there is a change of attitude to this ?)
- Parties involved and their citizenship, residency and potential marginal tax rates
- Agreements ie early exit etc and issues with land rich transfers

Legal advice would be wise

 

As I mentioned above - Land Tax.
Companies can retain income, or pay a dividend to a company shareholder which retains.
27.5% tax rate
Companies not acting as trustee can lend another company not acting as trustee money without Div7A.
Less complicated than trusts

It is essential for you to get legal advice as many far reaching issues.

 

Thanks for all this. Im generally pretty savvy with taxation and basic legal structures, but there are more interactions and issues than i originally thought. Im going to go get some advice.

Cheers
Ax