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Buying PPOR using a Trust and Rent it out to myself

Discussion in 'Real Estate' started by agarcia, 14th Sep, 2009.

  1. agarcia

    agarcia New Member

    12th May, 2009
    Adelaide, SA
    Hi there, does anyone know how to structure a purchase of a property through a Trust and still be able to rent it out to myself without loosing the negative gearing tax benefits on my personal income? I have looked at the use of hybrid trusts but have been getting different opinions from the accountants. Can anyone shed some light there?

  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    Okay from what I can tell, what you are essentially trying to do is negatively gear your PPOR - this is fraught with danger and is likely to attract attention from the ATO.

    You are trying to combine two risky strategies:

    A) rent a property owned by your trust - not impossible to do, but you must be seen to be doing this at arms length (pay market rents, etc). It has certainly been recommended to me to steer clear of this strategy.

    B) negatively gear a property held in trust - this requires some form of hybrid trust, many of which have had difficulties of late given the ATO's rulings on what deductions they will allow. Not all hybrid trusts are created equally and there are very few which seem to actually achieve what you set out to do. I suggest you steer clear unless you have an accountant you trust to have a rock-solid hybrid trust deed that actually works.

    ... and trying to combine these two strategies seems like a rather big risk to me.

    I suggest you aim to keep things simple - far less that can go wrong then.

    Your PPOR is CGT free if you own it in your own name and over the long term this is potentially worth far more to you than any negative gearing benefits you may get now.

    Why not just buy it it your own name and avoid all the problems? Once you've got a bit of equity in the property, you can then borrow against it for investment purposes and get some negative gearing benefits then - all while enjoying CGT free growth on your PPOR.