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  1. #1

    Default Renting out a property owned by Family Trust

    I live by myself in a property owned by Family trust. I would like to either rent some rooms out or rent the whole place and move out somewhere smaller. What is the best way to go about it since itís owned by Family Trust I canít get any tax benefits I believe like claiming expenses against my personal income tax etc. Is there a way around it or can I transfer it in the name of a company and then rent it out and claim the losses against my personal income?
    Thanks

  2. #2
    Join Date
    May 2004
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    2,774

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    You could take in up to 2 boarders without paying tax on the income, subject to some IRD (and WINZ if relevant) restrictions. I know that's not what you asked but might be an option.

  3. #3

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    Quote Originally Posted by artemis View Post
    You could take in up to 2 boarders without paying tax on the income, subject to some IRD (and WINZ if relevant) restrictions. I know that's not what you asked but might be an option.
    Well I had a couple of Flatmates/Boarders till April this year but managing them was proving to be difficult so on my own now. Well, no one is able to tell me for sure if I need to declare the income from Flatmates/Boarders as trust income or not? I need to file Trust return soon and it seems it's just safer to declare the income and pay tax on it? Can anyone confirm for sure, I am sure there must be an answer to this and lot of people must be doing it. I would ideally like to rent the property out and move somewhere smaller or buy something smaller, is there a best way to rent out a trust property?

  4. #4
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    May 2004
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    Check out section 3 of IR264. It clearly sets out what must be declared for flatmates and boarders, and what need not be. There is a bit there about trusts and boarders as well.

  5. #5
    Join Date
    May 2007
    Location
    Hamilton
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    Quote Originally Posted by quebec View Post
    Well I had a couple of Flatmates/Boarders till April this year but managing them was proving to be difficult so on my own now. Well, no one is able to tell me for sure if I need to declare the income from Flatmates/Boarders as trust income or not? I need to file Trust return soon and it seems it's just safer to declare the income and pay tax on it? Can anyone confirm for sure, I am sure there must be an answer to this and lot of people must be doing it. I would ideally like to rent the property out and move somewhere smaller or buy something smaller, is there a best way to rent out a trust property?
    Hi quebec,

    Yes you have to return income from flatmates, in your case it is just who was the landlord. Most likely the Trust, so the Trust would return the income and claim a portion of the house expenses relating to the flatmates.

    If you have boarders, there are exemptions for income under the threshold ($255 approx per week for 1 boarder, same for 2nd and then reduces slightly for a third), so would most likely not have to return the income. But you still could return the income and claim the portion of expenses. Main difference between boarders, is that you provide food to boarders.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  6. #6
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    May 2007
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    Hamilton
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    For your original question, yes a Trust can rent out the property.

    If it makes a loss, the loss stays in the Trust and accumulates until the Trust can use up the losses.

    You could look at restructuring but two main issues
    1) what is commercial reason (apart from tax) to move ownership from the Trust? you could look at who is paying the loss, and that Trust has no income to pay this, so had to sell to you

    2) why did you orginally put the property into a trust? most likley for asset protection, so if you now sell to yourself or LTC, you lose the protection. Could put in place some loans with security which might help a bit.

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  7. #7

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    Quote Originally Posted by Rosco View Post
    For your original question, yes a Trust can rent out the property.

    If it makes a loss, the loss stays in the Trust and accumulates until the Trust can use up the losses.

    You could look at restructuring but two main issues
    1) what is commercial reason (apart from tax) to move ownership from the Trust? you could look at who is paying the loss, and that Trust has no income to pay this, so had to sell to you

    2) why did you orginally put the property into a trust? most likely for asset protection, so if you now sell to yourself or LTC, you lose the protection. Could put in place some loans with security which might help a bit.

    Ross
    Thanks for replying Ross but I did not understand much of what you said. No other reason to move form Trust apart from offsetting the loss against my personal income. For e.g. if I rent the property and it needs repair or maintenance, i won't get any benefit and it all goes from my pocket and makes things harder in long run.
    It was originally put in after separation from my partner for asset protection purely.
    Now I have few options -
    1- Continue living there on my own and pay Mortgage but save nothing ever as I am paying too much just for 1 person in the house.
    2- Get flatmates which will help paying mortgage and I can also still live there and declare the income as trust income.(Not preferred but will do it if I have to)
    3- Rent it out and either rent a smaller property myself or try to buy something smaller. Not too easy as I can go up to $350-$380 max. while keeping this one.

    What would you suggest I should do? Or if there is anything else I'm missing that can benefit me.

    Thanks again.

  8. #8
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
    14,833

    Default

    How the income (of past boarders) is treated can depend on the 'audit trail.'
    If it went into the Trust bank account, direct from the boarders, it would make
    the case that the Trust was the LL. If it went into yours, you're more likely
    to be regarded as the LL. If you got cash and banked it, the account that you
    deposited it into probably counts.

    You can set yourself up as a sole trader, (or a company) lease the property
    from the Trust and sub-lease to tenants. Far simpler than any title transfer
    and should meet your other concerns about deductibility of expenses, etc.

    Given the potential for an up to $50k award against a LL by the TT Kangaroo
    Kourts (s77), a PM company may offer better protection.
    Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

  9. #9
    Join Date
    May 2007
    Location
    Hamilton
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    Quote Originally Posted by Perry View Post
    You can set yourself up as a sole trader, (or a company) lease the property
    from the Trust and sub-lease to tenants. Far simpler than any title transfer
    and should meet your other concerns about deductibility of expenses, etc.

    .
    Be very careful doing this! A Hamilton lawyer (now struck off) was promoting a scheme where you would set up a lease between soletrader or LTC to rent the property at say $400 from Trust (who owned the property), and then LTC would rent to public for say $300 per week.

    Therefore loss in LTC/soletrader, so get to offset against personal income.
    Trust owns the property so asset protection, and also break even for tax as charging higher rent to LTC.

    I think it is dodgy!!

    Ross
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  10. #10

    Default

    Quote Originally Posted by Rosco View Post
    Be very careful doing this! A Hamilton lawyer (now struck off) was promoting a scheme where you would set up a lease between soletrader or LTC to rent the property at say $400 from Trust (who owned the property), and then LTC would rent to public for say $300 per week.

    Therefore loss in LTC/soletrader, so get to offset against personal income.
    Trust owns the property so asset protection, and also break even for tax as charging higher rent to LTC.

    I think it is dodgy!!

    Ross
    Thanks Ross, would you be in a position to advise me as to what should be my course of action from the 3 possible scenarios or something else.


 

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