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  1. #1
    Join Date
    Feb 2015
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    374

    Default New Trust or keep LTC

    Currently have an LTC which if shares are sold to a new trust will give us a savings of around $4k pa as well as asset protection . Move personal freehold house to Trust, as might as well utilize the Trust. So single easily entity and easily managed. Plan is to buy more IP's.

    The setup costs will be around 4-5K with with 4K in depreciation recovery plus added cost of returns.

    For the benefit of 4K per year is it worth it to restructure?

  2. #2
    Join Date
    Feb 2010
    Posts
    307

    Default

    Hi
    Just being nosy..but where do the 4K per yr saving come from?
    Thanks
    Richard

  3. #3
    Join Date
    Oct 2013
    Posts
    1,617

    Default

    Consider this; you have the opportunity to invest in something for $5k, that gave you $4k per year for at least the next 5 years, potentially forever. Would you do it? It certainly seems worthwhile to me.

    Presumably your $4k per year is savings as a result of distributing profits to low-income beneficiaries. Be aware that legally they do have the right to this money; it's not yours anymore.
    AAT Accounting Services - Property Specialist Accounting - AATAccounting.co.nz
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  4. #4
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,595

    Default

    Quote Originally Posted by Bluecoat View Post
    Currently have an LTC which if shares are sold to a new trust will give us a savings of around $4k pa as well as asset protection . Move personal freehold house to Trust, as might as well utilize the Trust. So single easily entity and easily managed. Plan is to buy more IP's.

    The setup costs will be around 4-5K with with 4K in depreciation recovery plus added cost of returns.

    For the benefit of 4K per year is it worth it to restructure?
    Hi Bluecoat,

    What % of the LTC can you transfer with no depreciation recovery? Also who gave you the depreciation recovery figure. Is this the depreciation recovery, or is the $4k the tax on the depreciation recovery?

    I ask because sometimes you can transfer all the shares in an LTC with no depreciation recovery, or sometimes you can transfer a large % without depreciation recovery. Depends on circumstances.

    Set up costs of around $4k to $5k. This isn't just for the transaction you are looking at! If you just looked at the tax benefit side
    - share valuation and transfer, maybe $250 cost
    - set up trust, normally under $2k through a lawyer
    - personal house to trust (seperate transaction, and you need to consider seperate cost vs benefit)
    So probably only really $2k cost to get the tax advantage.

    So if cost $2k set up, $4k tax on depreciation recovery = total $6k. If you can get $4k tax saving, that is a pretty good return! 67% return per year!


    Other option - what if you just transferred the shares to the lower earning spouse? Does that give most of the $4k tax savings, but with a lot less costs?

    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.

  5. #5
    Join Date
    Feb 2015
    Posts
    374

    Default

    Quote Originally Posted by Rosco View Post
    Hi Bluecoat,

    What % of the LTC can you transfer with no depreciation recovery? Also who gave you the depreciation recovery figure. Is this the depreciation recovery, or is the $4k the tax on the depreciation recovery?

    I ask because sometimes you can transfer all the shares in an LTC with no depreciation recovery, or sometimes you can transfer a large % without depreciation recovery. Depends on circumstances.

    Set up costs of around $4k to $5k. This isn't just for the transaction you are looking at! If you just looked at the tax benefit side
    - share valuation and transfer, maybe $250 cost
    - set up trust, normally under $2k through a lawyer
    - personal house to trust (seperate transaction, and you need to consider seperate cost vs benefit)
    So probably only really $2k cost to get the tax advantage.

    So if cost $2k set up, $4k tax on depreciation recovery = total $6k. If you can get $4k tax saving, that is a pretty good return! 67% return per year!


    Other option - what if you just transferred the shares to the lower earning spouse? Does that give most of the $4k tax savings, but with a lot less costs?

    Ross
    Excellent Thanks Ross.

    12K depreciation claimed so about 4K.
    should be no Depreciation Clawback if the building (excluding land and chattels) was purchased originally for under $200k.

    So $250 will be the total cost from your side ?

    Only issue I have is I don't understand gifting as far as My own house is concerned. Right now I have no debt on it but could potentially use the money if I wanted to. How will this change when transferred to a trust?
    The security aspect will change as If I borrow against the LTC , does the banks have security overall?
    Last edited by Bluecoat; 24-02-2018 at 01:20 PM.

  6. #6
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,595

    Default

    Cost for valuation and share transfer - somewhere around $250. Depends on how hard the valuaiton is, but should just be property values, plus other assets like bank account, less shareholders current account and bank loans.

    Gifting - A lawyer who sets up your trust should fully explain this to you as part of the cost of set up

    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
    Join Date
    Feb 2015
    Posts
    374

    Default

    Great thanks. So what is the process Ross, what do you need from me, lawyer is in Hamilton as well.

  8. #8
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,595

    Default

    Quote Originally Posted by Bluecoat View Post
    Great thanks. So what is the process Ross, what do you need from me, lawyer is in Hamilton as well.
    First step is setting up Trust with lawyer. Then can look at the share transfer part.

    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.

  9. #9
    Join Date
    Feb 2015
    Posts
    374

    Default

    Over the weekend , saw quite a few opportunities for Sub dividable or MDU projects and hold .
    If owned by trust the loss will be locked in a trust against future profits.
    Not Ideal in a trust but good in existing LTC

  10. #10
    Join Date
    Feb 2015
    Posts
    374

    Default

    Quote Originally Posted by Anthonyacat View Post
    Consider this; you have the opportunity to invest in something for $5k, that gave you $4k per year for at least the next 5 years, potentially forever. Would you do it? It certainly seems worthwhile to me.

    Presumably your $4k per year is savings as a result of distributing profits to low-income beneficiaries. Be aware that legally they do have the right to this money; it's not yours anymore.
    Certainly. Except I would also want to grow the portfolio. At the moment income is not big enough to go and do my own thing.
    Increase value and improve yield is what I am looking at . so initially it will be hugely negative , so Trust would not be ideal as losses are locked in.
    Any suggestions? Another entity perhaps?


 

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