New trusts needing 12 months operation before being profitable

Hey!

My wife and I have recently purchased 2 new properties in WA and we were planning on purchasing another 2 properties in new trusts to assist with our serviceability strategy this year.

We have just been informed by our MB that banks aren't accepting our accountant's letter stating that the new trust entities are trading profitably because they haven't had a full 12 months of operation. We have a significant amount of franking credits from our business that we use to make our trusts profitable.
The business was operational for 12 years without utilising FC before buying houses.

I was wondering if anyone else has had this issue and if there is a way to move around it? We still have a considerable amount of equity available within redraws that we were planning to leverage into other properties.

Looking forward to hearing from you.

 

I have never encountered a lender saying that. Who is the lender?

 

Hey Terry,

NAB - They would include all of our loans with them even if they are in different trust entities.

Macquarie and Adelaide Bank - Stated that they would like for the trusts to be open for a period of 12 months before accepting an accountant's letter.

 

We haven’t encountered that with those lenders. Might be something new though

 

It was only last week that we came across this issue. Our MB stated that she hadn't encountered it before.
I have trusted her with all of our purchases and she seems to know her stuff, would love to hear if this is something that's now being implemented across the board or if it's just an issue that she is having.
I don't really want to engage another MB as ours has been fantastic over the last couple of years with 6 loans. Would it be worth having another MB take a look at it?

 

How does this work?

 

Have you asked St George ..resimac the question ?

 

I would argue the accountants letter lacks the right detail. We come across new entities all the time and the lender will ask more questions. So why not give them the answers ?
Broker assistance will hel pwith picking the right lender too

Lender wants to see HOW the trust is self sustaining.

 

Hey Terry,
TBH this is how our accountant completes it so it's a little over my head. I believe that it has something to do with using fully-franked dividends from our trading entity to make the trusts profitable. I am welcomed to be schooled on this though haha

Thanks, we will send them our info and hope that they can assist. ATM we are trying to go through ANZ as all of our company banking is through them.

Can you explain what you mean by balance of the scenario? Do you mean the property purchase price?

I would agree that the accountant's letter is vague in nature as it only states that the trusts are all profitable.
"We can confirm that the below trading entities are trading profitably, have no outstanding tax liabilities and can meet its own commitments. For the non-trading entities, the entity is not trading and has no outstanding liabilities."

Most of the properties that we own are negatively geared or neutral at best. So I don't think that the letter could go into a huge more detail without banks wanting to look at all of the financials. If this was to happen we wouldn't match serviceability.

Our broker whom we have used for all of our previous purchases is great. However, ran into the issue of the trust having to be open for 12 months before trading profitably and so we are now giving it a try ourselves or at least trying to find solutions.

Thanks

 

Probably the company operating the business has its shares held by a discretionary trust which can then distribute to other companies and trusts that are beneficiaries.

 

Hey Terry,
Yep, our trading entity is held by a discretionary trust so this sounds right.

 

The standard for a new set up would be a letter stating "not trading and has no liabilities" rather than an established entity letter "trading profitably and can meet its obligations" . Maybe just need to reword the letter.