Setting up a Trust or SMSF

This question depends on how much money you have to invest and how many gains/profits you believe you will generate. 

Investing under a Trust

• Once you are able to justify the costs of having a Trust/Company which, if solely for investment purposes, is $1-2k per year in administrative fees, then it is a viable option to consider. A question to ask here is if the Tax Benefits will outweigh the costs, or will the Asset protection that a Trust/Company provides be worth the additional administrative costs? 
• For investments in Trusts, you will need to distribute the profits to an individual to be eligible for the 50% discount on Capital Gain Tax (CGT) for assets held longer than 12 months, whereas for short term, CGT’s and dividends can be distributed to the trustee company and tax can be paid at the company rate.

Investing with an SMSF

• A Self Managed Superfund provides you with the ability to have control over your retirement and make the investment decisions you wish. With that in mind, you will need a $250k balance in superannuation between yourself and any other parties you wish to include in the SMSF.
  
• There are tax benefits to making additional contributions to your super each year, and with that, you will need to get specific advice. However, generally speaking, you are able to claim up to $25k as a concessional contribution less any superannuation your employee has already paid for you during the year. 
• You might have identified that your superannuation has not been performing to the level you had wished, and with that in mind, you may want to take control of your investment decisions. We support clients to manage the compliance of the SMSF each year and work with clients to ensure they successfully navigate through the strict rules of the SMSF.
• We also work with specialists to ensure that you have the appropriate insurance in place and if you need direct support with your investment decisions. 

Personal Name Option

If you are buying a negatively geared property, you would want to consider buying this under your personal name. That way you are able to get the tax benefits of it and that will reduce your income tax payable each year.

When you purchase a property under your own name, you will be entitled to a 50% discount on CGT on the sale of the property if you held it longer than 12 months and did not live in it. 

Personal Name, with spouse or friend

You can purchase a property with your spouse and/or friend, this is effectively a partnership and with that, you would each have a predetermined percentage of ownership. If the property is negatively geared, you will both receive a reduction in your income tax depending on your percentage of ownership. If the property is positively geared, then you will receive an income equal to your ownership percentage, which will increase your taxable income and you will pay income tax on it. 

*If you are considering this option, please book a consultation with our specialist below, as the above is general information and does not take into consideration your personal circumstances.

Under a Trust

This option is useful when you are buying a positively geared or neutrally geared property, as you can take advantage of the way Profits are able to be distributed from a Trust to its beneficiaries and pay lower tax rates than you might otherwise have paid if you owned it under your name.

You are also entitled to the 50% discount on the CGT if you held the property over 12 months and distribute the profits to an individual who is not a minor (Under 18 Years old). 

This also gives you the benefit of buying a property today in 2022, then selling it in 2040 when your children are above 18, attributing the capital gains to them and giving them the money to purchase a property. 

• Any profit distributed from the trust to individuals would be considered Taxable income and taxed at the individual rate. 
• Any profits distributed from the trust to a company would be considered as Taxable income, and taxed at the company rate. 
• You are able to use equity in your home as way of a deposit for lending purposes (you may want to check with your Broker regarding this).
• When we set up a Trust, we have a choice to make who is the Primary

  Beneficiaries. This will generally be both spouses. 

• Secondary beneficiaries, are automatically included, and they are anyone related to the primary beneficiaries by blood or marriage.
• It is the discretion of the Trustee, to determine by the 30th of June each year, who will receive a profit distribution. However, this does not need to be paid by the bank account of the trust by the 30th of June. 

* If you are considering this option, please book a consultation with our specialist below, as the above is general information and does not take into consideration your personal circumstances.

Under a Company

This option means that you are not entitled to the 50% CGT discount. Rarely would this be a suitable vehicle for investment purposes. 

* If you are considering this option, please book a consultation with our specialist below, as the above is general information and does not take into consideration your personal circumstances.

Under a Self Managed Superfund (SMSF) 

Buying a property with your super fund is more complex than the above options. You have to consider several things; You will require $300k+ in combined super balance, between you and anyone else you want to do an SMSF with. 

A Statement of Advice is required when setting up an SMSF. This is the official advice we provide in our recommendations to set up the SMSF and rollover funds from your current super funds to the SMSF.

Are you borrowing money for this purchase?

Yes: If you are borrowing money, you can only buy a property that has 1 contract, eg: already established property or from a builder that is selling the land and build combined. When you are borrowing money, you will also need to set up a Bare Trust for lending purposes. 

Generally, the bank requires you to have an additional $50k cash left over from the investment. They will also require a 30%+ Deposit, this can not be equity from any other properties and will need to be cash.

No: If you are not borrowing money, you are able to buy land and select a builder with two contracts. All transactions under an SMSF will need to be at arm’s length (both parties acting in own self interest) and strict rules apply for blending personal and SMSF funds. 

SMSF has an effective tax rate of 15% and is able to claim a CGT discount of 33% if you held the asset for more than 12 months. 

*If you are considering this option, please book a consultation with our specialist below, as the above is general information and does not take into consideration your personal circumstances.

Anything you wish, some people like to use their last name, EG: Smith Family Trust, Smith Investments Pty Ltd & Smith Superfund

For those that want to do multiple property purchases, you might want to pick the suburb or street name.

Other times, people like to use random words. We will be able to look up to see if the name is available during the setup phase.

Our professionals at Hatcher Advisory will handle all administrative requirements of the SMSF, including the Tax Returns, Financials, ASIC Compliance & pension documentation. This is part of our service offering.