I know thiers the difference between taxable income and net income. Im looking at buying a property in side a unit trust. 440k purchase price 352k loan inside trust Rent 470pw Depn 12k py Total Rent would be like 23.5k And total interest would be 27808 Theres also deprecation which make it heavily negative Would this mean that the loss will be stuck inside the trust. How would i be able get around this so i can get access to the depn benefits???
I don't think you can. At best you could look at using a hybrid trust so the borrowing was in your own name and thus the interest and borrowing expenses would be deductions against your taxable income. But depreciation, rates, insurance and other expenses connected to the property will be for the trustee. Cheers N.
You could still use the unit trust, but instead of having the $352K loan inside the trust - have the $352K loan in your name and use it to buy units in the trust. The trust then has the funds to buy the property, the trust will be positive cashflow as it doesn't have the interest expense. That positive cashflow gets distributed to you, and you claim the interest on your 352K loan against this cashflow. Works very much the same as a HDT. I guess the main difference being that the trust profit gets distributed in proportion to who owns the units (ie you have no discretion over whom you distribute the profits to)
Thanks Nigel, i was hoping this wouldnt be the case. One way would be to lower the borrowing % in the trust to the point that rent minus depn, expenses and interest would still be positive. This positive would then be distributed to the unit holders. And the unit holders would claim the deduction for the rest of the interest costs as it would be held in thier own name. However on a new property with high depn you could only really borrow 100k which would be an lvr of 25%. Not much point. If your going to do this it mass well be a DT... I really wanted to hold it in a unit trust to avoid future stamp duty implications. I wanted a HDT to stand up in court before i went for one however i maybe running out of options.
Yeah i was thinking this as well Ive sent the question to my broker, Just awaiting a response The numbers would stack up like Rent = 460 pw so ~24k per year Interest on 80%= 352k*7.9%= $27808 So its already negative before you include deprecation. So if I can take the loan out it will be like Rent ~24k Depn ~12k Expenses ~5k So distribution of ~5k to offset all interest costs outside of the trust. Setting it up in a UT means the units can be transfered to a HDT latter on for little cash. (except cgt, ie stamp duty is only 0.6% of the value of the units) Does anyone have the borrowing outside of the unit trust secured by the property inside the trust?
Not personally - but all the people with HDT's would have. I would imagine the same lenders would do it for a UT.
Also discussed here Where can you get loans for HDT? - Somersoft Property Investment Forums and here HDT Friendly banks - Somersoft Property Investment Forums