Buy Investment Property Under Family Trust
Many people often have a question: should they buy investment property in the name of individuals or family trust? And which has more tax advantages? Today, let's do a brief introduction of buying investment property under family trust.
The Family Trust
A family trust is a discretionary trust which set up with the assistance of the trustee under the direction of the appointee. When establishing a family trust, the appointee will entrust his business or assets to the trustee for management through the trust relationship and distribute the income to the beneficiaries. Family trust itself only plays the role of agent and distribution, and needs to declare tax but does not need to pay tax, as tax is borne by the beneficiary.
The trustee can be an individual or a company. The specific setting of beneficiaries will be reflected in the trust documents, including designated beneficiaries, such as husband and wife, and general beneficiaries, including parents, siblings, children of designated beneficiaries and companies controlled by designated beneficiaries.
How To Set Up A Family Trust
When setting up a family trust, you need to appoint a trustee, who can be either a lawyer or an accountant. The trust contract needs to be drafted at the time of establishment. The purpose of the establishment of the family trust, the information of the trustee, the definition of beneficiaries, the definition of trust income, and the way of distribution should be stated in the contract. Some Australian states need to pay stamp duty when establishing a family trust. If you plan to operate a business with a family trust, you will need to apply for an Australian business number (ABN) and tax file number (TFN) for the family trust. Most family trusts open bank accounts in the name of the trustee for calculation and disbursement.
The Advantages of Family Trust
1. Flexible tax planning and preferential tax treatment. Firstly, the trustee of family trust can reasonably distribute the trust income according to the current personal income of each beneficiary, and adjust it every year. The tax exemption amount can be used to achieve the optimize tax structure based on the family unit. Secondly, family trusts might enjoy discount on capital gain on properties they hold for more than 12 months.
2. Separate asset rights and earnings rights to protect assets. An individual's assets are exposed if the beneficiary is sued for compensation over debts, but the assets in a family trust are not affected by personal debt or bankruptcy.
3. Simplify family estate planning. The transfer of family trust is simple, and there will be no capital gains tax and stamp duty like the sale of real estate. From the perspective of estate planning, it is simple and convenient, and there will be little legal dispute.
Disadvantages of Family Trust
1. The loss in the family trust cannot be distributed to the beneficiaries, so the tax cannot be reduced by negative gearing, and the loss can only be saved in the family trust to reduce the future income.
2. The income generated by the family trust must be distributed to the beneficiaries in the current year and cannot be retained for redistribution in the next financial year.
3. Not entitled to the state government land tax exemption.
4. Stamp duty is imposed when property is transferred from individual's name to family trust.
If your investment property loan interest rate is low, depreciation is low and in a profitable situation, you can consider using family trust to buy investment property, and achieve a reasonable distribution of income and legal tax avoidance.
Comments