This article is very opinion leading, it is not financial advice, it is a disclaimer to seek financial advice from your own financial advisor according to your own circumstance and risk preference. Although most financial advisors don’t give advice nowadays. I trust the property market in Australia, because the population is growing with a good employment rate, housing mostly affordable except the big cities CBD and prestige suburbs. Limited supplies and slow production in housing, high tax environment and complicated huddle in lending, make it hard for most people to arbitrage fat profit from the property if they are short term players too. However, never underestimate the power of leverage and time in the market, where the advance holding structure is the key to minimise your tax in the long run, minimum 10 years. It is hard for young investors to make an investment decision that is only going to benefit them significantly 10 years later. I trust trust structures to hold investment properties, because most investors do not use it, ignore it, rush into the property market, but most advanced investors only use trust structures. It is the tax advance tools designed by rich people, for rich people. Welcome to the capitalist side. I never worry the capitalist will be wiped out by the government or the Labour party, simply because most people in the Parliament get high pay, and have multiple properties.

[ S o u r c e: T h e A g e , Vic t o ria n p olitic s: T h e M P s wit h t h e la r g e s t p r o p e r t y p o r t f olio s ( t h e a g e.c o m.a u ) ]

[ S o u r c e: S B S: P oliticia n s a n d t h eir p r o p e r t y p o r t f olio s: h o w m a n y d o t h e y o w n ? | S B S T h e F e e d ]

[Source: SBS]

[Source: SBS]

As you can see in the statistics in the image above, from the disclosure from the Parliament, and The Age news and SBS, most of our powerful politicians share great interests in property investment, and they will not cut the tax benefifits for themselves. Oh, by the way, I can never trust politicians who are not smart enough about money themselves, or who cannot earn a decent money outside the politician career.To me, that means their skillsets are not validated by the free market yet, hence why they are not competent and mature enough to manage tax payers’ money. I am not the smartest investor in the room. However, we have the previlage to service 200 home buyers per month on average, and collect enough data and case studies in the past 9 years. I also interviewed my top 50 clients who retired with a big propertyportfolio, great passive income after tax, whose No.1 regret was most commonly -- should of buying the investment properties under trust. I form the smart strategies these 50 top clients used in my book ‘Retire on Rent’ which is one of the best sellers on Amazon. [Link: Retire on Rent: A Systematic Approach to Accumulate Rental Passive Income for Retirement and Financial Freedom eBook : Tang, Thomas: Amazon.com.au: Kindle Store]

So here is the pro and con of buying the property under trust, all the con of course will be the con of buying it under an individual's personal name.

1. Complicity vs. Simplity.

First point is the con of buying it under a family trust or discretionary trust, with a corporate trustee. It is so convenient to buy it under just your personal name. But if you regret in future, you must pay the stamp duty again at future value to change it back. And I have seen circumstances where people did it with so much pain. Not many accountants can explain this properly, some of the YouTubers do it better than professional licence accountants for sure, worrying about opinion driving and losing their licence of course. A lot of accountants do not give proactive advice, and they have one boss -- the ATO. So it is very contradictory for them to teach you how to minimise your tax sometimes. Most of them will tell you ‘both ways are OK’. It properly is if you only want to invest one property and if the accountant is happy to pay the tax difference you can otherwise save if it is under trust. Most of them do not have multiple properties portfolios themselves.

I like a professional property investor’s quote: ‘Your accountant is having a small offiffiffice next to a laundry on the street. My accountant has a tennis court, helicopter site in the garden, a soccer playground at home, and a beach house.’ I, too, follow the advice from my multi-billion clients. Yes it may cost you the set up fee around $2,000 to $3,000 and ongoing extra annual tax preparation fee for a few hundred dollars, but it is all nothing compared with the tax you can save in the long run. Plus many banks do not do trust loans, and most brokers are not familiar with trust loans, and so it creates a wrong impression that ‘trust’ is harder to get the loan. Simply because you engage the wrong person.

2. Tax efficiency

There are pros and cons of buying it under trust from a tax effiffifficiency point of view. But trust will win overall.

Negative gearing benefifit is the number selling line for a lot of property marketer, not honest buyers agents or professional property investment educators. We need to see the bigger picture.

Would you want to buy a property that is always negative cash flflow? If not, why is negative gearing so appealing to you? My conclusion after tracking 9 years of property investors data, if someone sells their properties within 5 years, most of them lose money, due to high purchase costs, i.e. stamp duty; and high holding costs, mostly interests cost then plus land tax. And selling costs, i.e. agency, ads and legal, lucky if you pay capital gain tax. Please refer to my book ‘Retire on Rent’ on the detailed breakdown of the costs associated with selling and holding properties.

What’s your tax rate? 45%? Are you earning like a CEO or dentist? Why would you need so much negative gearing?

Simple conclusion is, if you do not see a way to make your property become positively geared within 5 years of holding the properties, the negative cash flflow pressure will usually force people to sell the property. What do we call it? Premature sell. You can refer to the excel tool on my website for a 10 years cash flflow forecast, with comprehensive factors and assumptions. (www.retireonrent.au) So paying a bit of rental income tax from your property is a good thing to survive through the long holding time and the complicated economic environment throughout the time.

Oh, also, many people argue that the land tax surcharge under the personal name is ‘cheaper’, oh really? Ok, yes you win if your ambition is to buy one investment property for the rest of your life. Or not even. Let’s see the clear chat from ProSolution tax advisory below, see how buying investment properties under individual names can be more costly in the long run compared with under different trusts.

[Source: Vic-land-tax-charts.pdf (prosolution.com.au)]

Now, are you still excited about that couple of thousands dollars of savings when the time is long enough in the holding? And how would you judge your accountant when they respond to you and say ‘Oh, both are ok.’ Plus if they mention to you that the negative gearing benefifits, how much do you need to pay back to the government at the time of selling? I will leave this for you to fifind out. Now is the exciting part for tax advantage under trust: Corporate trusts can offer tax advantages, including potential deductions and the ability to distribute income among benefificiaries in a tax-effiffifficient manner. The annual losses can be carried on as accumulated losses to offset future profifit. Once there is net profifit in the trust, you can also distribute it to the lowest tax threshold benefificiaries; the same circumstance applies when you sell it after 10 years, say when the value doubles. Say you have $500,000 capital gain, rather than paying a 45% highest personal income tax rate, you pay 25% corporate tax rate fifirst, then distribute to different family members, different fifinancial years, and potentially to other trusts again to offset their losses to achieve a lower tax rate.

3. Debt recycling or preservation of borrowing power

Now this can be a very advanced topic and contradict the lending industry, the regulation does not encourage the people to take out the debts they cannot manage. Hence I will fifirstly introduce two of my tools, one is amortisation excel to factoring rate rise and how sensitive it is to your cash flflow planning for 30 years. And another one is a 10 years cash flflow forecast, both excels available on my website. So only applies when you can cope with the future cashflflow worst case scenario and do not be too greedy.

Considering that lending policies may change over time. However, these kinds of policies were overall stable in the past.

Limited borrowing power is the No.1 factor why property investors cannot get the next investment property when they want to.

Simple conclusion, you can borrow more if you use trust fifirst, and early. Otherwise it is consuming your precious borrowing power. Say you earn $100,000 including future rental income of $20,000, then under the income to debt ratio 1:5, then you can borrow $500,000. And that’s the end of your property game until your next big pay rise.

4. Other pros: assets protection, limited liabilities, and estate planning, andPrivacy.

Setting up a corporate trust (such as an Pty Ltd or a trust) can provide limited liabilityprotection. This means your personal assets are generally protected in case of legalclaims or debts related to the property. Hence why this option is so popular among the high income earners, including executives, entrepreneurs and medical

professionals and others.

Corporate trusts can be useful for estate planning, allowing you to pass on ownership of the property to beneficiaries more easily. And Australia does not have inheritage tax, guess what made the premium assets and big commercial building spass on to generation after generation? Again, trust is created by the rich, for the

rich.

Corporate ownership can provide a level of privacy, as it may not be publicly disclosed who owns the property. If it is under trust rather than individual name, it is very hard tofind under title search system and credit report system.

Now, lastly, you are the one who made the decision in the end, accountant,financial planner, lawyers, banks and brokers, none of them will sign a piece of State of Advice to tell you to buy it under trust or individual name. Maybe somefinancial planners will, after they charge you an $8,000 advice fee.

If you could make a purchase of my book on Amazon, it would be much appreciated,part of the book revenue will be donated to rural education and medical research chariteis.