Best entity to own mortgage free rentals for retirees

[BlueSky]

I almost signed up with a reputable firm in New Market who advised to form a trust, put my home and LTC in the same trust. With recent changes and H&S act, might not be so prudent.
I am glad that I waited as now with forthcoming inability to offset losses, it would be better to keep LTC and just buy more in it to offset each other. Simple , of course may miss out on tax savings of 5K a year but at least I didn't sell the LTC shares in the same trust.

What I might do is put personal home in the trust and the trust will charge LTC interest for the loan

[Perry]

I suspect there will be all sorts of juggling of structures as Taxcindarella fiddles while the affordable homes of Rome vanish in a puff of smoke.

[Rosco]

I almost signed up with a reputable firm in New Market who advised to form a trust, put my home and LTC in the same trust. With recent changes and H&S act, might not be so prudent.
I am glad that I waited as now with forthcoming inability to offset losses, it would be better to keep LTC and just buy more in it to offset each other. Simple , of course may miss out on tax savings of 5K a year but at least I didn't sell the LTC shares in the same trust.

What I might do is put personal home in the trust and the trust will charge LTC interest for the loan

Note this post is mortgage free rentals. So having mortgage free rentals in LTC owned by Trust would still work fine, regardless of rule changes coming up.

BlueSky - your case might be or might not be different. If your LTC will run at a loss after interest charged from Trust, under the expected new rules, the Trust would have to pay tax on the interest earned, whereas you could not use the LTC loss to offset your personal income. So going forward if the LTC is a loss this might not be the best option.
If your LTC will run at a profit, then why not have it owned by your Trust? Profit then flows to the Trust, also get asset protection by being owned by Trust. And then wouldn't have to charge interest across, as all profit would flow to Trust anyway.

Ross

[Perry]

If your LTC will run at a profit, then why not have it owned by your Trust?

If a company is owned by a Trust, would not any company liability pass upwards to the Trust? Thinking of this issue, that you raised earlier:

. . . . LL (LTC) liable for health and safety disaster.

[Rosco]

If a company is owned by a Trust, would not any company liability pass upwards to the Trust? Thinking of this issue, that you raised earlier:

Hi Perry,

No. One of the main idea's of a company is that it gives limited liability. So in general if a company goes bust, the shareholders are not liable. You do need to make sure the share capital is fully paid and the company hasn't loaned the shareholders any money.

An LTC is a company. It's only difference is for tax, and it has made an election with IRD to become a Look Through Company. So the profit or loss flows to the shareholders.

Ross

[BlueSky]

BlueSky - your case might be or might not be different. If your LTC will run at a loss after interest charged from Trust, under the expected new rules, the Trust would have to pay tax on the interest earned, whereas you could not use the LTC loss to offset your personal income. So going forward if the LTC is a loss this might not be the best option.


If your LTC will run at a profit, then why not have it owned by your Trust? Profit then flows to the Trust, also get asset protection by being owned by Trust. And then wouldn't have to charge interest across, as all profit would flow to Trust anyway.

Ross

The new rules will be pro rated so by the time it ends I would have it paid back the Trustees.

Expensive to setup and maintain?
What will be the yearly cost to manage vs an LTC.

[Rosco]

I wouldn't think of an LTC as expensive to setup or maintain
- As you already have the company and trust, set up is just an election with IRD. Need to check no other items that would catch you out, but should be well under $250

- maintain - 2018 and going forward owners basis gets a lot easier. Otherwise nothing really extra for LTC, so I would say the same to maintain as your current company

So LTC owned by Trust, should be same cost as your current Company and Trust.

There is no perfect structure and it does depend on your situation. I don't know your situation so I can't say whether this is better for you or not, but in my experience it is often easier. Plus heaps easier to get capital gains out of an LTC vs a normal company!

Ross

[BlueSky]

Sorry Ross I meant selling current LTC shares to a new trust with moving your house in same trust.

What will it cost to setup and ongoing costs ?

Which entity would you then put any new properties if negatively geared?