Transferring from trusts to LAQCs

Question from Simone Vincent updated on 15th May 2009:

I have a property that I purchased 18 months ago and put into a Trust initially. The rent doesn't cover mortgage/rates/upkeep. I plan to have the property for another 6 years, but was told to put the property into a LAQC and gain a benefit of a lower personal tax rate. Would it make more sense to go ahead and rearrange it? (I also plan to buy another rental in 3 years time.)

Our expert Mark Withers responded:

Hi Simone,
Sounds like you might not have been given all the facts when you decided to use a trust. A trust offers you the opportunity to protect the wealth you are building in the property but it does not allow the loss on the renting activity to be distributed to a beneficiary. This means that if the property stays where it is the losses will simply accumulate in the trust until the trust can generate an income and begin using the accumulated losses. This will probably require you to have significantly reduced the debt to make the property profitable.

If you abandon the trust though you are placing a greater importance on the tax saving than on the asset protection. You will have to decide which is more important to you. If that is the tax saving a restructure is your best bet. Ask yourself whether the risks you face in your life that could threaten your assets are real or perceived? One little thought that might help though.. A trust will protect the wealth you already have but a tax saving actually makes you wealthier!
Kind Regards Mark Withers

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.



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