Trust scenario numbers
Jo asks:
(updated on Wednesday, November 12th 2014)
I have a family home in Auckland (owned in a trust) with 70% equity in it. We plan on purchasing another property and moving into it for five years. After that we will return to the family home. In the interim, the family home will be rented out. What is the best way to structure the loan/entity to allocate the losses? Also, in terms of interest deductibility what is the best way forward?Thanks
Our Experts Answer:
There are two key tax considerations here. Firstly, any money that is borrowed to buy the home you will live in will not give rise to an interest deduction. Secondly, any losses that the trust incurs on renting out the Auckland property can only be claimed by the trust. They can't offset income in your personal returns. Start by working out the net income from Auckland to determine whether there is a profit or a loss. Consider whether selling the Auckland property to a new entity, perhaps a look through company that debt funds the purchase can give a material enough tax advantage to warrant the not insubstantial cost of a restructure. Over all of this don't forget that you put Auckland into a trust for a reason. Is the lure of a tax advantage really a good enough reason to restructure? Especially if you will need to restructure again back to what you had in five years time. The only way you can do this accurately is to budget the different scenarios properly and determine what is at stake financially and whether the gains are big enough to warrant the changes.
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| Kainga Ora | 5.69 |
| ASB Bank | 5.75 |
| BNZ - Std | 5.75 |
| AIA - Go Home Loans | 5.75 |
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| ICBC | 5.39 |
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| Co-operative Bank - Standard | 5.69 |
| Kainga Ora | 5.79 |
| Pepper Money Prime | 5.99 |
| Unity Standard | 6.04 |
| Unity Special | 6.04 |

