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  1. #11
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    Oct 2013
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    Quote Originally Posted by King13 View Post
    - What is the benefit of LTC owned by the Trust? The LTC would pay tax at the company rate but wouldn't income passed to the Trust be taxable at the Trust rate?
    - There can be substantial costs in moving the rentals from current ownership to any new structure. As is advised, structure should be set in place before buying the investments.
    LTCs don't pay tax at any rate, profits or losses flow directly through to the underlying shareholders, except when loss limitation (complex and annoying) applies.

    In many cases there'd be little benefit in having it in an LTC versus having it owned directly by a trust. But if it's already in an LTC, it's a lot easier to transfer the LTC shares to the trust than it is to sell all the property from LTC to trust.
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  2. #12
    Join Date
    May 2007
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    Hamilton
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    There can be very good reasons for having an LTC with rentals, owned by a Trust. Rather than rentals directly in a Trust.

    As mentioned earlier in this thread and in bold below! A key part of structures is separating risk. In the past rental properties had virtually no risk, but times are changing. Now if you had 10 rentals, you wouldn't want them in the same entity as your personal house. Health and Safety for example is a real risk to property investors.

    Another reason might be for ease of Trust administration.

    Another might be to keep GST separate to your Trust. If you had a commercial property, you might not want to GST register your Trust (can have unintended consequences later if rent as short term accommodation at some stage, or have a holiday home)

    Ross

    LTC - Wouldn't put personal house in here, but could put rentals, and then have LTC owned by Trust. Profits then flow to Trust.
    Separates personal house and trust in a worst case scenario, ie landlord (LTC) liable for health and safety disaster.
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  3. #13
    Join Date
    Jun 2014
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    492

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    Quote Originally Posted by Rosco View Post
    LTC - Wouldn't put personal house in here, but could put rentals, and then have LTC owned by Trust. Profits then flow to Trust.
    Separates personal house and trust in a worst case scenario, ie landlord (LTC) liable for health and safety disaster.
    The main advantage I see in your explanation on LTC owned by Trust is risk management. Assuming the tenant sue the landlord for whatever reason, the rental involved will have limited liability since it is parked under LTC and owned by the Trust. That means the personal house of the trustee or beneficiary are protected, but the LTC that owned the rental is liable. Technically, the shareholder of LTC is the Trust (legal entity) instead of the trustees and beneficiaries. Hope I got it right.

  4. #14
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    May 2007
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    Hamilton
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    GST can also be a biggie, in certain cases.

    As can ease of Trust management. Much easier to run a Trust that just owns a personal house and some shares in an LTC.

    Ross
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    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  5. #15
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    Sep 2004
    Location
    Hastings
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    13,135

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    I wonder about all that - in case of a relationship break-up.
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  6. #16
    Join Date
    Feb 2013
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    247

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    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

  7. #17
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    Sep 2004
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    Hastings
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    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.
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  8. #18
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    May 2007
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    Hamilton
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    Quote Originally Posted by BlueSky View Post
    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
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    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  9. #19
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    Sep 2004
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    Hastings
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    Quote Originally Posted by Rosco View Post
    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.
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  10. #20
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    May 2007
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    Hamilton
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    Quote Originally Posted by Perry View Post
    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
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    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.


 

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