Tax on a trust

[iwik]

If you move your rental property into a trust is rental income
taxed at 33% ?

At the moment my rental property is in my name and with claimed
interest expenses, maintenance etc have enjoyed being taxed at the
lowest rate of round 14% so would not want to lose that, in a trust can
the income be directly channelled to me a beneficiary and still enjoy
the lower tax rate ?


cheers

iwik

[Rosco]

Hi Iwik,

The Trustees of a Trust can choose what to do with the income.
- keep in the Trust at 33%
- Allocate to beneficiaries at their personal tax rates.

Why do you want to set up a Trust if you still want all the income to go to you? - normal reason is asset protection, but you need to think hard on what you are protecting.

If you do decide to sell from personal name to Trust, watch any depreciation recovery on buildings (if you owned pre 1/4/11)

Ross

[tire kicking investor]

It is cool that you only get taxed at 14%, I pay way more than that and I only earn $ 800 pw.

Can you give me any tips about how to achieve this as I see from your other posts you have a large number of places in Christchurch.

Any advice greatly appreciated.

[Anthonyacat]

It is cool that you only get taxed at 14%, I pay way more than that and I only earn $ 800 pw.

Can you give me any tips about how to achieve this as I see from your other posts you have a large number of places in Christchurch.

Any advice greatly appreciated.

Hi Tire

Good news! You've already acheived it.

$800/week x 52 = $41,600 per year.

Tax on $41,600:
$14,000 @ 10.5% = $1,470
$27,600 @ 17.5% = $4,830
Independent Earner Tax Credit = (520)
Total Tax: $5,780

Tax % (Tax / Income) = 13.89%

[tire kicking investor]

Thanks for all that Anthonyacat, I always thought I paid so much in tax.

So if Iwik is paying the same rate then he must be earning about the same as me I guess?

Thought he would have earnt a lot more as he has lots of houses and retired before 30.

I was wanting to do what he does but I would need more money than that to travel and party.

[Anthonyacat]

It's impossible to say without looking at Iwik's financial returns, and company/trust accounts, but if he indeed does have a 14% tax rate it is likely that he earns around $40-$45k per year.

However. This may be the case through clever tax manipulations. If he does in fact have many rental houses, it is possible that some of these make a lot of money while others make losses, all the while they are all increasing in value.

It's impossible to comment without further information, really.

[iwik]

Cheers Rossco , interesting about the depreciation

Just looking into free resthome etc down the line.


Tire its more in the 50K but that 50K is all mine
no mortgage, power etc.
Was going to put in brackets that the 14% no doubt be coming
to an end but thought better to keep question straight forward.

This year is the first year I'll be paying provisional tax. Wacked
$85000 on loan last year.
Been subsidising tenants rents since the quakes, two are coming up for rent
so be another $150 plus per week - remaining rentals be increased by $20
per week in a few months.

Hopefully will only move to next tax bracket.


As for partying had my fair share of Ooozze Oooze
Travel - Germany, Holland, Belgium, Japan, America, Thailand, Malaysia

Toured Aussie for a year

Year before last did a 12 day cruise, off to aussie end of the month.

Found when you do not have to work you do not risk suffering from "freezing worker syndrome"
blowing your income to bring happiness in your life cause you are not fulfilled 40 hours per week.
Lower overheads too.

[Anthonyacat]

Hi iwik

A concern for the free Resthome is that it is not as easy as some make out. The act that governs residential care subsidies only allows for $27k in gifting per year, which doesn't go far with property prices these days.

Keep in mind the ongoing costs of keeping a trust going, compared to potential benefits that you may never achieve. To be clear, not advising against it, but it's not necessarily the right choice for everyone.

Anthony

[iwik]

Yeah cheers - good points

Heard recently winz re pension take a dim view on trusts.
In the main 27k probably not to bad if you at the stage where you drinking
coffee from a straw - just throwing the balls up there really and see what gives with it all.

[Rosco]

Hi Iwik,

Do you think the resthome rules will be the same, by the time you go into a resthome? All the rules around this kind of thing are changing, and I'm guessing the resthome rules must change shortly too look at Trust assets too!

Will you go into a resthome? I think the number is something like 5-6% of people do, so 95% approx don't.

With the $27k gifting limit. Say you have $2.7 million equity, it will take you 100 years to gift this to the Trust. So if you only gift for 50 years before going into a resthome, then you still wouldn't get the rest home subsidies until the remaining $1.35 million assets are used up to pay for resthome fees.

Ross

[Perry]

WINZ look back quite a long way, too.
Better to have the set-up from the start
than it is to make transfers to and fro.

[iwik]

Hi Iwik,

Do you think the resthome rules will be the same, by the time you go into a resthome? All the rules around this kind of thing are changing, and I'm guessing the resthome rules must change shortly too look at Trust assets too!

Will you go into a resthome? I think the number is something like 5-6% of people do, so 95% approx don't.

With the $27k gifting limit. Say you have $2.7 million equity, it will take you 100 years to gift this to the Trust. So if you only gift for 50 years before going into a resthome, then you still wouldn't get the rest home subsidies until the remaining $1.35 million assets are used up to pay for resthome fees.

Ross

Cheers again Ross food for thought, no doubt the % will increase with baby boomers
Does anyone ever know if they will have to go into a resthome one day ?

Hopefully my younger girlfriend will continue to run round after me.


Good point Perry - yes always the berries to have things set up years beforehand.

[speights boy]

Do you think the resthome rules will be the same, by the time you go into a resthome?
All the rules around this kind of thing are changing, and I'm guessing the resthome rules must change shortly too look at Trust assets too!

Yes, there has been quite a bit of action in this area recently.
My guess also is that the rules will continued to be tightened.
Quite a few people with trusts will be disappointed their plans in this regard will come to naught.
The taxpayer will be better off for it.