rust or not?
The word "Trusts" is used very loosely by some people and when someone says to me that one should or should not use a Trust it's like saying should you or should you not use a "Motor Vehicle."

The answer is simply what are you trying to do?
 
For example when someone says to me that you should not use a Trust because it traps the negative gearing inside a Trust and cannot offset the interest against your salary than they are referring to a Family or Discretionary Trust. Well that's only because you used the WRONG Trust.
 
It's a bit like saying that Motor Vehicles cannot carry rubbish to the tip. Well a truck can take rubbish to the tip. It simply depends on what type of Motor Vehicle you are talking about.
 
This is the same in the use of Trusts. There are dozens of different types of Trust and they all do different things. Just like there are all different types of motor vehicles and they all do different things.
 
You really need to understand what they all are and what they are used for.
 
The common types of Trusts that people are familiar with are Discretionary or Family Trusts and the less familiar ones are Unit Trust and Hybrid Trusts. There are dozens of other less known Trusts such as Testamentary Trusts, Absolutely Entitled Trusts, Bare Trusts, Blind Trusts, etc,etc. They are all used for different things.
 
For example a Superannuation Fund is a Trust but is Not a variant of either a Unit, Discretionary and Hybrid Trust.
 
It's in fact a whole new type of a Trust which has it's own rules but has none of the traits of the other Trusts.
 
There is our "Property Investors Trust" which is built specifically for properties taking into account the different land tax rules around the different states. It also allows the rental to be passed onto the spouse who is on the lower tax rate or the negative gearing can be claimed in the individual’s name.
 
Our "Property Investors Trust" (P.I.T.) is the perfect Trust and the only Trust to be used for properties. The reason why we have trade marked it, is because we have spent many years (over 16 years) and many thousands of dollars to perfect this structure for properties.

Let’s look at some of the advantages of this type of trust.

It does not have an 80 year Vesting Date which most other Trusts Deeds have. The 80 year vesting date simply means that the assets in the Trust vests after 80 years to the beneficiaries causing a capital gains tax and stamp duty liability for your beneficiaries. Imagine what a problem that would cause your children or grandchildren. Our Property Investors Trust Deed does not have that problem.
 
It also allows Trust Splitting so you can move your properties into another Property Investor’s Trust without stamp duty and capital gains concerns. You may need this feature when you want to pass on properties to your children’s own Property Investors Trust’s.

The P.I.T.  allows anonymity with your assets held by a Corporation as Trustee and is designed for Property Investing only hence reducing the ATO's argument for Part IVA (Part IVA) is where the ATO can exercise their discretion to deny a tax deduction if in the ATO's opinion that activity was simply to reduce tax only)

The P.I.T.  has the capacity to have different trustees for different assets held in the Trust allowing easier (a)Trust Splitting (b) Transfer of assets to another Trust with a different vesting date.

It also has the capacity to ensure that no stamp duty is payable when there is a change of Trustees. If this is required there is a nominal fee for the resulting paperwork instead of triggering stamp duty

We have included a Descendants Lineage Clause in the P.I.T. to only allow final distribution of assets to bloodline Beneficiaries saving against marriage breakups.

There is the flexibility for Non Taxable distribution of funds if the Trust is in a tax loss position due to depreciation charges  and the capacity to enter Joint Venture and Life Tenancy arrangements.

Also there are general rights of the trustee to alter Trust Deed thereby reducing claims by the ATO of resettlement which triggers Capital Gains Tax.
 
The Unit/Discretionary/Hybrid Trusts are standard Trusts which accountants and solicitors have tried to adapt to properties but they were not initially developed to hold properties in. This means they all have some disadvantages or short comings when used for owning properties. For example Discretionary Trusts are bad for negatively geared properties or to own properties in NSW as they lose their land tax thresholds.

The Unit Trust loses its cost base after the depreciation of the property is passed through to the unit holder and a Hybrid Trust is unusable for properties in NSW as they lose their land tax threshold unlike a Fixed Trust retains its land tax threshold in NSW and so on.
 
These standard Trusts were set up for use in other things such as Businesses and to protect assets such as shares etc but when adapted to property had their shortcomings.
 
Our Property Investors Trust was developed just for properties and in fact we do not use them to hold other assets in as they are not developed for this.
 
We recommend the usual Unit/Discretionary/Hybrid Trust to hold other assets other than property. Again it simply depends on what you are trying to do as they all do different things.
 
For example if you ran a service business such as a Cleaning Business its always best to run that through a Discretionary Trust with a Company as a Trustee because it gives you asset protection and allows you to distribute the income to anyone you want who maybe on a lower tax bracket to yourself. However if you were planning to negative gear some shares or property you simply would not use this type of a Trust as it traps the losses in the Trust.
 
A Discretionary Trust is not good for a business if that business was made up of a few different people/principles hence a Company or a Unit Trust maybe better to help identify the different ownership percentages.
 
We never purchase a property in a company because when you come to sell the property you miss out on the 50% exemption for capital gains tax and also if the property was negatively geared the losses would also be trapped inside a Company.
 
You would however use a company to run a business through because a Company has the advantage of limited Liability ie has a limited amount of asset protection but it allows you to retain the profits in the Company and limit your tax rate to 30%.
 
The tax that is paid by a Company is not lost as it is if the tax was paid by an individual because it simply goes into a "holding account" called a Franking Account where sometimes in the future you can withdraw those funds (like a pension) totally tax free as long as your income at that time is taxed at 30%. In fact if your tax rate was under 30% eg say 20% you would receive a 10% refund.
 
You would not however put the shareholders of that company as yourself. We would hold the shares in the company under a Discretionary Trust to protect your assets since shares in a Company is considered assets and someone could try and sue you to get at them.
 
You can see that it's a mine field and one should get proper advice before one purchases anything let alone a property as its extremely expensive to try and unwind a structure that was incorrectly set up.
 
An example is a property bought in the wrong entity would require another payment of stamp duty eg average property of $500,000 attracts stamp duty of around $25,000. You would be required to pay this twice if you tried to fix the problem.
 
My best advice to people is to take advice before the transaction and not after the transaction. An ounce of prevention is.........you know the rest.