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Buying IP via JV between Trust and SMSF?

Discussion in 'Accounting, Tax & Legal' started by artgul, 16th Aug, 2005.

  1. artgul

    artgul Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
    77
    Location:
    Sydney
    Hi,

    I’m thinking in setting up a SMSF and then partner with it (JV) in order to make a property purchase. The idea is to create a hybrid trust that would acquire an IP with potential for subdivision. The IP’s title would be under the trust structure. I would borrow from the Bank to buy units in the trust and the Bank would have a first mortgage under the property. SMSF would also purchase units from the trust and the trust would use those funds as a deposit for the IP.

    I’d like to know if someone had done this before and what are the pitfalls and/or things I have to check / get right before getting into such arrangement.

    Thanks,

    Artgul
     
  2. NickM

    NickM Co-founder Staff Member

    Joined:
    20th Jun, 2005
    Posts:
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    Location:
    Sydney
    Hello Artgul
    Good question, but your SMSF cannot invest in a Part 8 associate (a related party or trust) that has encumbered the asset.

    Traditionally, your strategy can work with a unit trust owning the property but with no encumberance on the property.

    A HDT is not suitable for this type of investment as incoem distributed from a "discretionary trust" would be treated as special income and taxed at 47% in the hands of the SMSF.

    Look at some other alternatives if your financial position allows it

    Cheers
    NickM
     
  3. artgul

    artgul Well-Known Member

    Joined:
    16th Aug, 2005
    Posts:
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    Location:
    Sydney
    Hi NickM,

    Thank you for the info. I have another option and would like to know your opinion/comments on it:

    HDT owns a block of land. I organise and get Council approval for a subdivision then, I apply for a Bank loan in order to build 2 duplexes on the land. Before construction starts, I create a Unit Trust which will form a JV with SMSF to buy 1 of the duplexes of the plan from the HDT. The end result is that the JV of the SMSF and the Unit Trust will own a duplex mortgage free. Will this be possible?.

    Thanks,

    Artgul.
     
  4. NickM

    NickM Co-founder Staff Member

    Joined:
    20th Jun, 2005
    Posts:
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    Location:
    Sydney
    Hi Artgul
    Without knowing all the facts, in theory it sounds ok but you must ensure it is at market value and all you bases are covered.

    cheers

    Nickm