Transcription
Want to understand the details of how big investors just keep growing their portfolios? One of the keys is understanding how to correctly use trusts. There's a lot of things that can go wrong if you're not getting all of the real good, chunky advice. Up the deed determines what you can do with your trust.
Jeremy Onelli, property investor with over a $20 million portfolio and an accountant to some of the richest property investors in the country, gives us a rare peek behind the curtain at how top property investing accountants use their expertise for large-scale portfolios.
If it's an individual trustee, it's not going to be seen in the bank's eyes as a separate legal entity. But it's not just growing your portfolio; this is some serious tax benefits to minimize that tax bill. Of course, I am minimizing my tax, and if anybody in this country doesn't minimize their tax, they want their head.
The additional wealth that Mom and Dad derive by reducing the tax on the distribution to the kids, maximize the level of profit after tax. There are some other benefits that come with investing through a trust, especially with a corporate trustee.
What kind of questions do people want to ask to make sure they're in the right hands? You've got to outline your full circumstances, what you want, how you're going to get there. Want to build a portfolio that gets you in the 1% club for property investors and understand how to structure trusts to keep expanding your wealth to almost limitless barring capacity. If you want to be in that club, there needs to be a.
If you've ever heard anyone talking about trusts and property investing and wanted to know more of the details on how high-level investors use them, you're going to enjoy this episode. My name's Todd S, this is the Pizza and Property Podcast, and you're listening to my chat with Jeremy Onelli.
Jeremy Onelli, how are you?
Very well, Todd. Happy to be with you here in the beautiful part of Adelaide, mate.
You're too kind. I don't think it looks very beautiful outside today, but, um, it's good to have you here nonetheless. We're talking trusts, everything someone needs to know from a property investing and accountancy perspective. But for anyone that's maybe a little bit newer at property investing, thinking like, yeah, I've heard this term a little bit, but why is it so important? Can you talk us through a little bit about why people should even consider having a trust by maybe having a bit of a, someone that has used one, someone that hasn't used one, a little bit of an example?
Yeah, so I've always been very clear with the way that I always talk to my clients about trusts, and especially majority of people using them as an investment vehicle, whether that's buying property or equities, managed funds, things for children. I'm a big fan of keeping things simple in the initial stages of anyone's investment journey, whether it's again, shares or property. I like to make sure there's a little bit of wealth that gets created individually. And we'll talk about properties because this is the Pizza and Property Podcast, but generally speaking, anywhere between one, two, or even three properties is what we generally like to see as an accountant, as an investor, in your own names.
One, two, or three? Okay, so even as much as three. So you're looking at some people going, still don't set it up?
Absolutely. Because the thing is, we want to keep it simple. Trusts do cost a little bit of money to establish initially, and then there's an ongoing running fee with the accountant. There's ASIC secretarial work, there is an ASIC yearly filing fee for a corporate trustee if you have one in place. So we like to get it into a position where people start to feel comfortable that this is the long-term journey that they're going to take, utilizing property as a tool for wealth creation.
Okay. And so we're going to get into a little bit more about the costs and everything pretty shortly. Um, but when you say one, two, or three, does that really come down to what someone's goals are? Like, if someone gets to number two, but they're like, I love it, I'm going to the world on fire, I'm going to buy 20 properties over the next however many years, is that when you kind of look at that person and go, yeah, I can see you've got this hunger? Well, how do you make that choice?
Absolutely. So that's probably one of the most common things that I look at. I'm a person where I need you to show me before you tell me. I've heard some, some great stories from people willing to take over the world and, you know, make their next hundred million dollars, but very rarely do they get there because in that first one or two years of their journey, they've given up, thrown the towel in, and they've gone back and done something else. So rather than me, rather than you spend your money and me take your money to establish all these fantastic structures that you may not be able to use or don't have the capacity to use it yet, I want you to show me that you're willing to take this journey long-term, you've got all the clear aspirations of being an investor, and then putting it into action. Because again, setting it up too early, you might be having an investment vehicle which you won't use the long-term benefits that it will provide, and it's just going to cost you money. It's going to cost you money.
And many other professionals out there just say, well, that's life. You people will give them all the tools, and if they choose not to use them, well, then that's their problem. I like to run to a little bit of a different tune. No, I'd rather see that you've got the opportunity and you've got the capabilities of being able to use this investment vehicle first. Let's get your first couple of properties, let's see how you feel, let's see if this is a journey you want to take long-term, and then we can start to set up the more sophisticated structure for you to utilize and then obviously take forward.
I've just been doing gardening yesterday, so the analogy that pops to mind is, let's make sure you sweep the driveway before you buy a leaf blower. Absolutely. You know, don't go ahead and go buy an excavator when all you need is a shovel. Shovel. Yeah, just, you know, start with the shovel first. And if it's something you really love, you know, hire an excavator. And then after a couple of years or a couple of months, if it's something you really enjoy, then you go out and buy it. Of course, there's a cost incentive of doing so. That's the philosophy that I take. Very rarely will I establish trusts early for clients. There's got to be some extenuating circumstances around their profession or around, you know, their opportunity, their business. There might be a lot of risk of what they do, or it might be a special purpose vehicle, meaning that this trust needs to be, or this entity needs to be set up for the purpose of the property and what they're aiming to achieve with it. But for many people, Todd, I see them having ambitions of 10 plus properties, and they will stop it too. And that will stop it too for circumstances which relate to family, employment, change in life. I've seen many people throw the towel in and head overseas to work overseas, and then all of a sudden, this structure becomes almost redundant due to the Corporation Act and your role as a sitting director here in Australia.
So if someone's already at three, let's say we got two people, they're both at three, and they're both looking at going to four and five. What are the differences? If you can sort of talk us through, let's say it's a John and Jim situation. John's just keep buying in his name, number four and number five. Jim's gone, "Nah, I'm going down the trust route." Can you kind of explain a little bit more of that?
So there's the long-term benefits that a trust provides. So we'll start with, I think John was the one who's buying one, two, and three. He's bought his three and he's going to buy a couple more in his own name. Y. And Jim's going to start looking at a trust. So we'll start with John first, okay? What John has is he's got potentially obligations and liabilities that are contingent in nature. Meaning, as things grow, expenses may come into light. It could be such things as land tax. We all buy property. Now, we do hear the negative gearing beat and drum in many of the videos and that. I believe that's a bit of marketing. But in the end, we're all after looking at buying property for the wealth creation, the wealth that it provides from the capital return when one day we sell, or the wealth that it provides from the rental income which is exceeding the expenses, otherwise known as positive gearing. Now, if John continues to buy these particular properties in his own name, he will experience a significant level of tax that he needs to pay later on in the future. And that tax will be either when he sells at the highest marginal rate, at present being 47%, or when he starts to earn and generate passive income, and he could be working a full-time job. Still, again, that tax will be most likely at the highest marginal rate as well, which is 47%.
And so how does that change then for Jim? Why is Jim paying less tax?
So Jim, where he's decided that he's going to go into a trust a little bit earlier, so he's going to purchase his fourth and fifth property in a trust. What Jim has the opportunity of doing, he's getting almost the benefit of both worlds. So again, we'll say, we'll match them up in terms of income. They're both on, let's argue, say $200,000, nice and easy to just exaggerate a bit of the scenario. Jim, he's going to purchase his two properties in a trust. He has the opportunity of being able to distribute the profit of that trust in the future when it generates a profit. Now, initially, John might win a little bit because he gets to claim a bit of the negative gearing on the fourth and fifth property in his own name, and Jim can't do any of that because in trust, Jim can't do that. He's in trust. So those losses that that trust obviously has to maintain through the capital he provides, he's got to pay that out of his back pocket, and there's no genuine net tax return that he'll receive on that. But that's short-term, okay? Because we don't want to be holding property for 20 years that's costing us an arm and a leg. The chances are that hopefully it's grown, but if it's not, we're just throwing away really good money chasing bad, you know, for a tax percentage which could be 47%. So we don't invest for tax. If you're still negatively geared after 20 years, you've probably made a bad choice.
Exactly right. So we don't invest for tax, we invest for wealth creation. So John gets a bit of tax benefit for three or four years while they're negatively geared. Jim has to carry those losses forward. Now, in Jim's trust, he will then start to generate some passive income, hopefully from the rental increasing and maybe some interest rate reprieve coming through, and he'll get to absorb those losses through the income that his investment vehicle, otherwise known as a trust, generates. So those losses that he had to work so hard to pay for over three, four years, he now starts to get those losses back.
Right, okay. Through the income that his trust is generating. And so when you're talking about the income that the trust is generating as well, so let's say Jim, with the trust, has a partner and also has a kid. Can Jim start distributing the funds of the rent that come in, or is it just distributing the funds of once it's sold and it's like realized profits?
Good question. So profit comes from two sections of the investment property journey. It comes from the profit of the rental income less the expenses. That comes from the profit of the capital gain that we make. So if Jim, in this particular instance, is now starting to generate rental profits, he has the ability to distribute to his beneficiaries that are nominated in the deed. Now, they can be named beneficiaries, or by definition, ideally, we like to have by definition because things change and new additions come into families and, you know, new entities that he may have control come into your overall structure. So you want a really good deed because the deed determines what you can do with your trust. Not, not all one trusts are exactly the same. There might be different variations in definitions which dictate what you can do.
And is this the difference between getting a proper trust set up and kind of getting like an off-the-shelf anything product?
Absolutely. So, you know, you've got your cheaper alternatives where you can go to the online trust retailers and you can essentially buy a deed, and they'll change a couple of names. And then you can go to a more tailored approach, where, you know, very good legal entities have established and painted deeds which can be, you know, tailored and altered a little bit. But essentially, you are getting what you pay for with trusts. The more you do pay, in most instances, you probably are getting a very superior deed compared to an off-the-shelf one, which could be only 13, 14 pages long.
So the deed determines the rules. How long should it be?
Look, a good trust, you can put a lot of crap in on a piece of paper. But, you know, the good trusts that I see, anywhere between 26 to upwards of 40 pages long. Wow. Very, very superior deeds. I've seen them be over 100 pages long, and there is detail like you would not believe. But for most people, you would not need that. So I wouldn't recommend spending a silly amount of money. Your average cost would vary between two and a half to say upwards of three and a half thousand for most deeds.
Well, let's, let's start getting into that because I feel that we've answered really the question between John and Jim. The difference really is John right now is going to have some tax benefits in the short term because he's going to be able to get his negative gearing benefits back. Later on, though, he's not going to be able to distribute funds, he's not going to be able to sort of minimize tax later as far as if he sells. He's not going to be able to play with the CGT aspect of it the same way. So that's not in there. But the one thing, actually, before we move on, asset protection is something we really haven't talked about. What's the difference between John and Jim here from John's perspective? His wealth's all in his own name. So he goes into business, and he starts to provide personal guarantees to suppliers or the tax office or anyone associated. What he needs to do to produce an income there could be things that happen with the property. He may not repair them. He may go and do his own repairs and not do things up to code, and the public indemnity or public liability insurance with inside the insurance policy, he doesn't cover those things. He's exposed personally. Yeah, okay. He's exposed personally. His whole assets that he owns sits in one basket, which is the basket of John. Where Jim has now started to diversify his asset holding, not just by buying maybe in different areas, but by buying in different structures. So Jim is exposing potentially two or three properties that he owns in his own name, and he might be exposing two or three properties that he owns in a trust. But only if something goes wrong with the trust do those properties become part of the exposure. Um, and vice versa, if something goes wrong with him, he's only exposing his personal properties.
Now, one thing people need to understand with the trust is that you do not own a trust. Very interesting. You don't own it. You control it. You control the trust through the appointer ship, and the appointer, being otherwise known as the ultimate controller, has the right to appoint or remove a trustee. The trustee is the one who manages the trust. Now, this is where I wanted to share with everybody just a bit of an illustration. What it looks like. Draw this. And if you're listening on iTunes or Spotify right now, head over to the YouTube channel because I think we're actually about to animate what Jez is going to shorthand at the moment. Yeah. So there's two types of trust that, well, two types of trust that people normally establish. One is called a discretionary trust, and the other one is called a fixed trust, otherwise known as a unit trust. And discretionary trust is otherwise known as a family trust in more colloquial terms. Unit trust, we'll start with that one. Very basic. It's just a, it's a trust that is fixed by units, otherwise is determining and identifying the owners, which is the units of the trust. How many units can you have? You can have as many as you want. You can have as many unit holders as you want. There's no one rule. So you got to have a million units. You got to have a million units. So unit trust or fixed trusts are very commonly established for very large entities, like large listed property trusts, because when you buy, you're buying units, essentially buying bricks or mortar inside their entities, and you get a distribution, a gross distribution, every year.
So is that essentially how syndicates work?
Exactly how syndicates work. So everyone pulls their money together, people have different amounts of money, and then in return, we'll have different units, and in return, we'll have different share of profits. So unit trusts are really great for two people, three people, 10 people, all coming together that want to receive a level of distribution from the profits that are made, either from the rental income or from the sales. So that's where fixed trusts come into play. Not hugely common, um, although, as I said, when multiple people are coming together, it's something that you look at doing. But for this case, and for many people, people's situations and circumstances, most people go down the discretionary trust path, otherwise known as a family trust. That is an entity that you're establishing for the benefit of you and your family. Great way to reduce tax, great way to, you know, protect your assets. But two types of discretionary trust that people generally establish, and it's more into more in relation with the trustee. You've got individual trustees, which they, that means that they sit as the manager of the trust. So something goes wrong with the trust, they go to the manager, okay, you have done something wrong with this trust, we need to understand what's going on, and we potentially might litigate you if something is wrong. So that means you are not creating a separate legal entity barrier between yourself and the trust. From a borrowing point of view, the banks won't look at this and have their separate legal entity concept eye in front of them, so they'll start to then collateralize you and the trust as being one entity because you are the manager.
And is this what we're about to get into soon when you're talking about like the actual structure and how it's all set up?
That's it. But this is the different trusts within that structure, correct?
Sure. And follow on. And then we've got our second way of establishing the trust, which is more commonly for many accountants and solicitors. They'll do this for their clients. They will remove a trustee from being an individual trustee and they'll appoint, otherwise known what they call a corporate trustee. Now, many people refer to this as a company trust. It's, it's an easier way to say it. But what it is, it's a, it's a trust with a corporate trustee. And this provides a separate legal entity concept now. So what you have is a company, which is now managing the trust. Now, you are the director of that company, or you and your partner might be the director of that company. But you do have the Corporations Act to fall under. So something goes wrong with the trust, they're coming after, most commonly known, the corporate trustee, which will have no assets. It will have no ABN in most circumstances. It won't even have a tax file number. It does not lodge returns. It's just got potentially $1 or $2 of share capital, meaning it's a $1 company.
Todd, so what's the difference between this and the term Phoenix companies?
Phoenix companies is a very different terminology, and that's where the tax officers started to put a word, Phoenix, in to elicit an action that people are doing, hiding underneath the Corporations Act, the legislation behind it. But essentially, what they're doing is they might have a company that gets established, they'll put John as a director, for argument's sake. John racks up a huge amount of debts, but really, Jimmy is in the background, and he's the one making all the decisions and potentially acting as a shadow director. Y. John can't afford to pay the debts, puts his hand up, says the company needs to go into administration and moving forward, maybe liquidation. And then another company then gets set up under Pat, and Pat then just continues to do the same thing John did, all under the control of Jim. The tax office is trying to stop people hiding behind legislation, got the Corporations Act, and starting to get people to pay their debts that they're racking up on behalf of the companies. So Phoenixing is, is something that probably has gone on for a lot of years, and the tax office are now becoming extremely harsh and are spending a lot more time chasing all those particular people who are partaking in this, in this strategy. And it's not, it's not a legal strategy. It is genuinely illegal. So it's not so much the, the company trust or anything like that, that's the good thing or the bad thing. It's the way that some people are using it. Like, you can drive your car down the road like a normal person, or you can drive it like a maniac. Absolutely. And then you're of the penalties if you drive it like a maniac. And you, you won't get touched if you're driving like a normal person, obeying the road rules. Got it. But coming back to the structure, this is typically how many people will or should establish their discretionary trust with a corporate trustee in place. It gives a layer of asset protection and it creates a separate legal entity concept in the eyes of the bank as well.
Okay. So now coming back to Jim, some other benefits that Jim gets that John potentially doesn't is that when his trust goes into a position where it's able to be self-sufficient, Y, generally being able to pay for all of its expenses through the rental income or other investment income that that investment vehicle or trust is earning, positively geared. And again, positive gearing is a concept that comes from the position of a property where its income exceeds expenses. Inside that same trust, if Jim wants to, he can have managed funds, unencumbered managed funds. That means with his savings and cash by funds in the trust, he can buy shares, he can buy other investments that are generating a return for the trust to be in a position where it's self-sufficient. When it gets that particular position, this is where brokers start to utilize, you know, lending legislation and then are able to potentially negate debts inside this trust.
Okay. So does it have to be an asset that makes it positively geared, or could it be an annual income that's actually put into the trust by an individual?
Good question. So if it's an annual income coming into the trust by the individual, then it's not seen as a self-sufficient entity because it's requiring that income to continue to, you know, make up the difference of what the particular investments are losing. But if it comes from a dividend, then they look at it and go, well, that dividend is going to continue whether you do it or not. That's it. So as long as you're receiving that dividend, not from a closely held entity, such as your own company or a company that you are a 60% shareholder of, if it's a company like Telstra or, you know, other big entities like that, BP, Rio Tinto, then that entity is going to continue trading whether you're doing anything or not, and that dividend will hopefully continue to be there for a large period of time because it's a major listed blue chip company producing yearly dividends on average has probably been consistent for a large number of years.
What if it was a smaller company, but still like bigger like, but not like an ASX? Let's say I had a trust right now, I had all this structure, and then I said, Jez, love your business, I want to buy into it. You pay me a dividend every year for being a shareholder in your business. Does that count, or is that like, no, this is still too close?
Yeah, as long as it's as long as it's an arms-length distance entity where you're not a director of, for argument's sake, I'm the sole director of it, and you're just a private investor, then yeah, that dividend you receive will be considered as income for the trust. It's up to the banks then to determine how likely will that dividend be continued to be received for a large number of years to come. So once that's, you know, that that vehicle, this trust, is now positively geared through its investments that it has, all of a sudden, that's where the brokers can start to do their job and not be creative, because I don't like to use the word creative, but work with inside lending legislation to be able to negate this debt. And now Jim has an opportunity to continue investing without taking into account the debt with inside the trust against his own personal borrowing capacity.
So there are some other benefits that come with investing through a trust, especially with a corporate trustee, where if it's an individual trustee, M, it's not going to be seen in the bank's eyes as a separate legal entity. So they will take that debt, unfortunately, again, against potentially Jim's income, and therefore there's going to be no borrowing capacity benefits in the long term.
Corporate trustee, if the trust is a unit trust, does it still work?
Yeah, generally speaking, most unit trusts will have a corporate trustee as well. So all trusts must have a trustee, whether the trustee is an individual, the trustee is a corporate entity. A trust does not exist without a trustee. And so this is both for the lending side of things, which is going to be a totally another episode that we'll go into even more detail about, but it's also from the asset protection side of things as well.
Absolutely. Both, both are really covered here. Absolutely. And then the benefits start to come from the tax, the ability to have doors that you can open, Todd. The ability to have streams, you know, that you can access. And like I say to everybody, more opportunities that we have, the more ability we have to save money. With that opportunity of saving more money comes the ability, as I mentioned, the distributing to beneficiaries. Now, if you've got children above the age of 18 and that are at university, not really working, you've got an opportunity to distribute them profits. So why above the age of 18?
So yeah, Bian and I are expecting. So you're telling me I can't give anything to little man?
You can't give anything to the little man, unfortunately. Yeah, until he's 18 years. Because they understand that when I say you can't give anything, there is a small amount, a token amount, you can provide them about $450 is by memory. Okay? But very little to the point where the accountant will probably charge you more money to do the distribution than the tax that you're going to save. But once your beneficiaries are over the age of 18, then they're taxed as adults, and you're able to really minimize your tax. You've got an opportunity of distributing to corporate beneficiaries. And this is a new stream now. Corporate beneficiary is a company, other people refer to it as a bucket company, an entity which holds profits. And if it doesn't pass, or it does pass, the passive income test. Now, passive income test means that if 80% or more of its income's been received purely from passive income, such as trust distributions, the tax rate's 30%. Now, there is a win with that, because, you know, if you're earning over $135,000, your tax sits at, you know, very close to 40. And if you're earning over 180 or now $200,000 with the stage three tax cuts in place, your tax rate's over 47%. Where with a corporate beneficiary, your tax will be a flat 30%. You just saved 17%. Absolutely. That's a genuine return that you're making, not through market environment movements, but through tax savings. So there's a significant benefit there for higher income earners to utilize trusts and generate income and then pass that through to corporate beneficiaries. At a worst, they're saving 17% tax. Now, again, if you've got distributions that you can pass through to active business entities, where 80% of its income is not coming from passive income, then the tax rate, depending on your turnover, but for most more businesses, your turnover is probably less than the 50 mil that they state, then your tax would only be 25%.
Coming back to that, then you need to start to move the money to those corporate beneficiaries, of course, because then you'll have an unpaid entitlement or unpaid present entitlement, otherwise known as a UPE, or potentially division 7A loan, which is essentially where you're taking money out of a corporate entity without declaring it as a wage or a dividend. So you've got to make sure that you do pass the money across to those corporate entities. But with your accountants, you can really come up with some strategies for very long-term tax planning to be able to get that money back out of the company with potentially franking credit refunds, or very little top-up tax to be paid on top.
I do you want to talk to you about franking credits with this as well? I think that this has probably segue perfectly now though into who do people really want to talk to? Because it's like, go to an accountant, but we're finding an accountant that just specializes just in trusts, just in property. Are all the same? Like, where do you start?
Accountants are probably first and foremost. I know a lot of people will talk to solicitors. Solicitors understand the legal side of the trust, they understand the applications involved with setting up the deed, the terminology, the definitions. But the challenge is, and apologies to all great solicitors out there, I won't paint you all with the same brush, but what I do find is they very rarely understand the application of a trust in terms of investment. So they're great with the deed, they'll give you all the legalities around it and how it all works. But then applying those, that deed, applying this trust to real-world applications like buying property and strategizing for tax and asset protection and how to put that into the overall scheme of things with the other entities you've got, that's where I find that they do pass a lot of that off to the accountant. So accountants are probably first and foremost your best people to chat with.
So just start there. Start there. They will have, in most cases, a good understanding of it. Typically, if they've used them themselves and they've got a lot of clients that are using them, they would have come across many different cases or case studies and scenarios which they're able to apply to. Similar to what you're doing. Okay. So more accountant that has more involvement in this on a day-to-day basis, you're going to see a very different tone. You're going to see a lot of confidence in the way that they produce their level of advice, and that's going to give you obviously the information you need to move forward in the right direction.
And what kind of questions do people want to ask to make sure that they're in the right hands and not just talking to Debbie down the road that's like, yeah, sure, I can put a trust together for you?
Understanding you've got to outline your full circumstances, what you want, what you're after, how you, how you're going to get there. And then it's up to the accountant to really apply what they've learned over their years of experience to say, this is what you should be doing, and this is when you should be doing it. Um, now, what's your family dynamic look like as well? That becomes very important. And now and planned, or just now?
Or absolutely now and planned. And planned. Because a trust, as you've heard me refer to it throughout this podcast, is an investment vehicle. It's not just there to serve one purpose. It is there to serve a purpose throughout the trust vesting life, which could be 70, 80, 90 years, depending on the state. So very important that you are sharing your plans for the future, because that will dictate what level of assets and what assets go in there to be able to then really maximize the level of profit after tax that you'll be receiving at any particular time.
Okay. So you want to go to the accountant with basically, this is my plan. I want to buy X properties, I want to build X passive income, I want to gain X capital, whatever it is. But unless you're going to them with the plan, then you're probably not going to get the answer that you actually need, because they can't tailor it to your plan.
Absolutely. You've got to have a good understanding, like anything in life, you've got to have a business plan, a life plan. Y. And the more that you can plan, as the old saying is, if you fail to plan, you're planning to fail. So you've got to make sure you give your professionals as much understanding of what you're wanting to achieve so they can work or tailor a strategy from a tax and structuring point of view to give you the best outcome now and into the future.
Okay. So talk about your plan. You want to now talk about the setup costs and ongoing costs? Because from what you've saying before, 14 pages versus 100 pages, I'm assuming there's some wild variation on how much this can actually cost people to set up.
Absolutely. What are we looking at for an initial and then an ongoing, roughly?
Yeah, so the range would probably be anywhere between $2 to $4,000 in most circumstances. Each accountant may provide a different level of service and different level of documents. Some might be all inclusive, and some might be lower cost to start with and then there's more ongoing cost later on. But probably anywhere between that $2 to $4,000 mark is probably normal. Your ongoing fees will probably range anywhere between $900 to a couple of grand. Can be a lot more depending on on the level of activity of the trust. So very hard to paint a, you know, a one fee or a range of fees because there are just so many different things that go into the entity from a compliance perspective. I think the main thing that you've got to make sure that you're thinking about as an individual wanting to set up this structure is, does the person, or is the person you're working with proficient in this space? M. And are you getting all the answers that you need? Because we don't know what we don't know. And I think that's why I look at this as like a little bit of a rough guide. Like, if you sit down with someone and they're like, yeah, I can set up a trust for you, that'd be 15 grand. After what you've just said, I'd be going, hold on a sec, why? Like, that's probably a bit much. But on the flip side, if they're like, yeah, I can do that for 250 bucks, I'd also be asking why.
Been in the opposite of like, is this just like done by ChatGPT?
Absolutely. Yeah. And I think that's a probably common range. Seen sometimes a little bit more from some clients, but there may have been a bit more service provided and a bit more of advice. So there's a range of different factors and things that would constitute, you know, fair price in many circumstances.
Okay. So $2 to $4,000 as far as the setup's concerned, and then ongoing annually, what are you looking at?
Trust? Yeah, so annually, you're looking at anywhere between say $7, $800 as a minimum starting point, upwards of, you know, could be as much as two to two and a half thousand. Again, depends on the level of activity with inside the trust. And that's per trust. Per trust. Per trust. Per trust. And in most circumstances, if you've got a corporate trustee, which is that $1 or $2 company we spoke about earlier, you will have what they call an ASIC filing fee. So it's that another $600 bucks.
I thought it was about $300 give or take.
$300. I think it's just recently gone up to about $321 a year. And that's just to compensate ASIC for a warehouse that they had many, many, many years ago to file all of your company documents, which now is done on very big servers. So they still have a luxury of charging without necessarily providing that physical premise that they did many years ago.
All right. So around $300 for the company side of things, and then what was it? Around that $700, $7 to $800 as a minimum point up to about two to two and a half grand as a genuine maximum. Most circumstances. Why two to two and a half? Is that when it's like, you are talking a much more complicated trust?
Yeah, you might have a trust that's got, you know, many different managed funds in it, or shares buying and selling scenarios, or could we have properties, multiple properties. You know, you've got to register or book those assets with inside the balance sheet. There's a bit of tax planning involved in those circumstances, depending on how many beneficiaries you use. So it definitely can ratchet up the cost. But ultimately speaking, if there is a high level of cost, there should be a high level of benefit that someone's obtaining on the other side.
When this is what I'm saying, like, if you're all of a sudden following the advice at the very beginning and you're like, yeah, got to buy it in a trust, got to buy it in a trust, and you're buying, I don't know, like a house somewhere in Rockhampton for $400,000, and they now all of a sudden you've got an extra $25,000 a year in fees, and you now you've bought two of them, that's five grand a year. It's $100 a week, just gone. But then if you stop it too, I can see why you're saying, just like, hold, like, hold your horses for a little bit, see if this is really what you want to build, because if it's not, well, then that's a lot of expense to probably not get that much benefit out of.
Absolutely. Absolutely. So it's a show me before you tell me approach. Y. Because that, you know, that interest in statistic is a very small amount of property investors. I believe it doesn't even tick over 1%. M. Of property investors get to throw more properties. M. So, you know, if you want to be in that, that club, there needs to be a certain amount of dedication and suppose discipline ongoing discipline to make sure that you're going to get there. And if you're going to use sophisticated structures, I want to make sure that for definitely for my clients, you've got every opportunity of being able to surpass that, much more, and to become a sophisticated investor.
Absolutely. Yeah. I know we've already done a little bit of an illustration, but can we go into a little bit more detail about what the corporate trust sort of structure really looks like?
Yep, not a problem. So we'll go with the first initial one, the easy one, which is an individual trustee. M. So you would have to establish who that trustee is, whether it's you, or could be you and your partner. It could be your parents. And then you need to set up the actual trust itself. With the trust, you will appoint an appointer. M. Which again, is the ultimate controller, who has the opportunity to appoint or remove a trustee. That's generally its powers. And then you've got the beneficiaries. And that beneficiaries can be named as these are the specific people which I can distribute to, or it can be done by definition. And that definition could be these are the people that we can distribute off the primary beneficiaries or secondary beneficiaries. So you actually will state who the primary or secondary beneficiaries are.
How easy is it to change them?
Very easy. So you can do with a solicitor, what they call amendments to the deed, and you can add or remove those beneficiaries as you need to. You just need to be very careful you don't change the actual trust itself, because there could be a capital gains tax event that occurs.
Can you dig a little bit more into that? What do you mean there?
Yeah, so if you start to really alter the trust substantially from what it was originally set up and intended to do, then you're starting to change the dynamics of it. And the tax office says, well, hold up, you're really starting to go in and change the dynamics of the beneficial owners, then that is a deem sale. And by changing these dynamics and changing where all these things are, then we want a portion of that tax benefit because you may have done that for tax purposes. So we want to say, well, there's a capital gain event that occurred.
And is that a clear line, or is that up to interpretation from the ATO?
Definitely up to interpretation from the tax office, at the advice and guidance of obviously your accountant and solicitor. So very important, you do want to make sure that you are really thinking forward. And that's why having a very good deed will give you the opportunity of not having to have those issues when they come, or if they come in the future.
Already, I'm really hearing this is probably the difference between getting something cheap set up off the shelf and getting something properly set up, because I'm assuming when this is all properly set up for anyone's situation, these are the questions that are being asked.
Absolutely. And you want to just make sure that as a professional, you're doing everything that you can to create less red tape and bureaucracy for your clients. You want to be able to give them all the confirmation in the world that they can move forward, and there is a lot of, wouldn't use the word fluidity, but a lot of opportunity for them to take advantage of what this entity is set up to do, which is to yes, protect your assets, but be to save a lot of tax in the future.
When you're looking at a corporate trustee, Todd, so we'll have to establish the corporate entity. Y. Otherwise, just a company, proprietary limited entity. We'll have to nominate who the directors are. And can the director be the beneficiary or the appointer, or they have to be different people?
So the appointer can be the directors. The settler cannot be a beneficiary of the trust. So generally, the settler is say, an accountant or solicitor, the person who established the trust. Okay. So I'm a settler for many people's trusts. I'm the one who's brought this trust into existence. I've issued the settlement sum, in most cases, and I can't be a beneficiary of that trust. So it's really just to stop, you know, some ambiguities that may occur in the future. I've been a third-party person to bring this into existence.
Okay. So we need to nominate a settler, which is normally the accountant. We also need to nominate a director or directors. Y. Nominate a director, directors. You need to nominate a public officer, a secretary, and more importantly, the shareholders of the trustee. And the directors can be the shareholders?
Absolutely. In most cases, husband and wife will be the directors. Husband and wife will be, may be the secretaries, or one of them will be the secretary. They'll both be the shareholders. So we're going to nominate directors, we're going to nominate secretary. Y. We're going to nominate the public officer, and we're going to nominate the shareholders. Now, generally speaking, again, it's all the parties of a trust, which would most likely be Mom and Dad, or, you know, partners, or could be parents as well. After we've established the corporate trustee and we've done everything the right way, now we start to establish the trust. And that trust will nominate a settler, which, as we've spoken before, is normally the accountant. It will nominate the appointer or appointors. And so both of those are coming from the trust, though, not.
The the corporation, both of those are coming from the trust. Now, there's no settler in the corporation. No settler in the corporation. So, we've now, we've organized who the settler is. We've now appointed the appoints. Again, could be both people who are the shareholders and or the directors of that corporate trustee, as well. And now, we should be nominating our primary beneficiaries, and we can nominate secondary beneficiaries if we wish to.
Now, primary beneficiaries are the people who will be the primary ones making the decisions and receiving the distributions of the trust. And from there, we can start to create distribution definitions, which then stem off the primary beneficiary. So, it could be, uh, father, mother of the primary beneficiaries. It could be cousins, it could be uncles, it could be anyone directly related to that primary beneficiary, and anyone directly related to that primary, uh, beneficiary. We can also now distribute to corporate beneficiaries where the primary beneficiary has an ultimate level of control. So, the definitions and how the deed is written will determine where all these distributions can go into the future. And this is why, as well, we're talking about planning this all out properly from the very beginning.
But now, I'm really hearing that the having the overall plan is like, it's not just, "Oh, that's important, you should do it." It's almost like, this is useless unless you've got this. Yeah, otherwise, where is all of this going? And if it doesn't serve the purpose that you're actually aiming towards, you could be intending to go to Melbourne and all of a sudden you end up in Perth because you didn't actually choose a direction to drive in. Absolutely. So, there's a lot more to it than just setting up a trust. You've got to understand what the person wants, where they're going, how they're going to get there, and then ultimately speaking, it's just a matter of putting that into perspective and then into legal established doc, legal, legal established entities. Is there anything else we want to talk about on the right side of it before we get into what the wrong side of the setup looks like?
Yeah, so this is probably everything you need to know when it comes to establishing a trust. What does the wrong side look like? If someone starts going, "All right, I've been told I've got a trust," and they're going to do X, Y, and Z, what should they be walking away from?
Okay, so if you've, generally speaking, if you're establishing a trust and you are an investor and you are the individual trustee, that's a very basic way to do things. And you will run into a lot of hurdles. Like, what will you run into hurdles from a borrowing point of view in the future? You'll run into hurdles from an asset protection point of view as well, because you are the trustee, the manager, and something goes wrong, you become personally liable in some circumstances, or in most circumstances, depending on the way things are done. So, you really want to stay away from being an individual trustee of a trust. Lot more things, lot more disadvantages, stuff that may not impact you today, but well into the future, will.
Um, if you've got a deed where it's very closed in the sense that these are the only beneficiaries that you can distribute to, and there's no definitions or clauses which allow you to be able to freely distribute to other entities or other people in the future, as and when they become made available to the trust, then all of a sudden, you're going to be going back to that solicitor or back to that accountant and spending lots of money to do deed of amendments.
Talk about that a little bit more. That's really interesting. What should people be asking?
Yeah, so does this trust allow me flexibility to be able to choose and pick and choose at my will, the ability to distribute to those people as and when they fall in line with the beneficiary tree? And if it does, you're going to be pretty well sorted. But if it doesn't, you're going to be just providing yourself a lot more time and headache and cost going back to all the professionals to amend the deed.
So, what I'm hearing is, if you're one away from the trust, you probably don't have the protection that you think you've got. You need to be two away from the trust, through the company, like through the, the corporate trustee. But also, if you don't have any flexibility in the trust, you're kind of going through this thing, "Yeah, I've done this right, I've set up a trust, I'm all good." But then it comes to distribute funds, you're not actually equipped to do that in a tax-effective manner.
That's it. And then when it comes to the protection side of things, you're not actually protected the way that you think you're going to be. So, it's really a false economy. Absolutely. And then the borrowing then starts to come into the issue as well. A lot of people, you know, think they've got a trust and they can, you know, it may help them from a borrowing point of view. And many brokers will say, well, unfortunately, if you're the individual trustee, you are one of the same. It's not going to help you. So, a lot of things need to be taken into consideration.
Do you see that much in the past?
I did, in the past, I did. And it was just through probably people wanting to establish cheap entities. Uh, but more commonly, I'm starting to see a lot more professionals establish trusts with corporate trustees. One thing I will say is, I am starting to see a lot more people go to, believe it or not, other professionals who are not accountants and solicitors to establish trusts.
Like, like who? What kind of a profession would sort of put themselves in this position?
Yeah, I've seen, I've seen some, uh, you know, some professionals such as brokers do this in the past, right? Uh, I've seen a couple of people in the property industry do it on behalf of their clients, getting it done through a third-party legal provider. And they're just not getting the right advice. What they are doing is they're setting up all the ABNs and TFNs for the corporate trustee, and no ABN or potentially or no TFN or potentially an ABN for the trust. So, the trust really shouldn't be, if it hasn't got a tax file number, it can't lodge a tax return. So, which entity is actually buying the property? Is it the trustee on behalf of the trust, or is it purely just a trustee buying in its own right? So, there's a lot of things that can go wrong if you're not getting all of the real, real good, chunky advice upfront.
That's insane, because that's such a false sense of confidence. I've heard, we actually had a property lawyer on the show probably about a year or so ago, and and he was saying that there was one person in particular, you and I would both know, but I won't name, that was running around for years telling people that, "Pay us 10, 20 grand, whatever it was, and I'll bulletproof all of your portfolio, all of your everything." And he basically got on and ripped it all apart. Was like, it's, it's not done correctly, it's not real, it's just, it's being sold snake oil, almost.
Okay, so, and there's a lot of that that happens in, in the industry. A lot. Okay, so, so far, we've discovered how this should be set up. We've talked about basically the questions people should be asking, how much it should be costing roughly, top end, bottom end for getting it set up, as well as ongoing costs. As well, we're talking about the right structures, the wrong structures. I want to talk a little bit about land tax and how this actually works on each state, because sometimes people will set up a trust literally just for that reason. I've talked to people before that are like, "I just want to like avoid my land tax." But that's not a blanket rule. Can we talk a little bit around the country?
Yeah, so we'll probably start with the two flavor states of the time that we're in at the moment, which is Western Australia and, and Queensland. Yep. Uh, they do have land tax thresholds for trusts, and they've got a land tax threshold for each new entity. So, it's not grouped, uh, which is an important thing. Being grouped means that you're consolidating all the entities that you've got, including yourself, and applying one threshold to it. At the moment, there's individual thresholds for each entity. We all know that a couple of years ago, there was some talk about Queensland trying to consolidate your Australia-wide holdings and and group in your, your Queensland holdings. But that thankfully, um, came in, came or got out as quickly as they tried to bring it in. But for WA, you do have a land tax threshold equivalent to that of an individual, which is about $350,000. And that means, means that, you know, if you've bought one property in, in Western Australia in your own name, you're almost at the cusp or the preface of having to pay land tax. You can establish a trust and get a brand new threshold. And in most circumstances, uh, the land tax, which is the initial surcharge, as soon as you go over that threshold, will pretty much compensate the ongoing cost of a trust. So, it's almost worthwhile in those, in those circumstances to continue to establish a new trust for a property in WA, because you're pretty much negating the land tax.
Um, the cost and subsidizing that with the ongoing fee of a, a trust, but you're getting the benefits that the trust provides, which is the potential ongoing benefits from a borrowing capacity point of view, a tax point of view, and an asset protection point of view.
Yeah, and, and even just looking at that, thinking 10 years forward, where if you're just spilling over into your land tax now and you're paying a bit, and then realistically, it costs pretty much the same amount to actually just set up a whole another trust. If you're just spilling over now, you're well and truly spilling over in 10 years' time. And they might make the argument of, "Oh, but they're probably going to change the, the tax thresholds." But what if they don't? I know that there's, we're about to talk about Victoria, like it's not as investor-friendly everywhere. So, I can see that that looks like it's a benefit from all angles, really.
Yeah, well, New South Wales typically has been one of the states that's continually indexed their threshold. Um, it's increasing year on year. But this is for anyone who has or is investing in New South Wales. This is very important. It kind of got through without a lot of, um, you know, hullabaloo from the media. But New South Wales, for many years, as land values have increased, they've obviously increased the threshold. Um, they came out and they've said that we are no longer going to increase the land tax threshold for individuals here in New South Wales. By memory, it's in the mid-9 at the moment, 950. Is, um, that was $6,700,000 only a couple of years ago. But they've now stagnated that and said 950 is now the threshold. It's no longer going to be indexed. So, for people who are on the cusp, as the threshold would increase, that would still be on the cusp. But now, if you're on the cusp, you're going to be well and truly over it, paying land tax into the future.
We read that out on APN not long ago as a story. And and I think you're right, I think that kind of flew under the radar. There wasn't really much talk about that.
No talk about it at all. And for many, many people, I'll be very open, uh, it's going to cost people minimum $1,400 to $1,600 just by being not indexed. It's, it's $1,400 to $1,600 out of the back pocket for, for probably a large portion of investors who have been relying on that yearly index of the New South Wales land tax threshold for individuals.
So, if we're going around the country clockwise, actually anticlockwise, let's go to South Australia. What are we looking at there?
So, for trusts in South Australia, the threshold is about $25,000.
25?
Okay. And about, and then you start to pay about half a percent, uh, land tax for every dollar above, uh, $25,000. So, for a $450,000 property, um, land value-wise in South Australia, roughly paying about a couple grand worth of land tax.
Okay, so again, this probably comes down to the whole, like, in your own name side of things, because then your land tax threshold is a lot better in your own name in South Australia, isn't it?
Absolutely. So, South Australia, the new rates is about $732,000 for individual ownership, okay? So, you'll pay no land tax up to about $730,000 worth of land value. So, again, needs to have that level of understanding depending on what type of property you're purchasing. Todd, as well, sometimes if it's commercial, uh, costs are built into, as on top of the rent, or as part of the rent, where individual, say, residential ownership for argument's sake, there are costs that a person needs to pay, or an entity needs to pay. So, these are very big things that you need to factor in when understanding whether or not it's worthwhile to go into a trust or not to go into a trust.
All right, Victoria. Victoria, as we all know, the threshold for a trust is very minimal, um, 25,000, 30,000, could be 30, similar to South Australia, may as well be zero, very minimal. And for individuals, about $50,000. So, there's been some big changes to the land tax thresholds in, in Victoria, hence, you know, it's been a bit of an impact for, for people's understanding or psyche around investing there. Um, but for many people, I do say that if you are investing there individually or via a trust, you've got to factor in that some of the other cost, holding costs in Victoria may be slightly cheaper than some other states around the country. And it could be through insurance, council rates, property agent fees, as well. These things you need to factor in when saying, "Well, if I'm paying a couple grand worth of land tax, but I'm saving comparative to another state, a couple grand worth of rates such as council or maybe insurance costs, then it's kind of a great way to even it out. You lose on one, but gain on the other."
Okay, so looking at this already, like, between South Australia, personal name and trust, there's a difference. Victoria, personal name and trust, like, if we're just talking tax, there's not really much difference. Much difference. New South Wales, probably got the biggest variation.
Okay, what, what are we doing? Mid-9s in New South Wales if you buy individually, uh, for a trust at zero. Right. For a trust at zero. So, for many people, if you've bought one or two investments in New South Wales, you probably have exceeded the land tax threshold. And as we discussed, it's, you know, now been, um, fixed at that nine mid-nines, uh, threshold. So, for many people, they're probably going to be over it with no indexing to occur. So, if you're already paying land tax individually, it makes sense to, you know, potentially buy your next couple of investments in a trust because there's no savings that you're going to get by putting them into your own individual name.
All right, man. I think we just skipped over Tassie. What, what are we looking at for land tax in a trust in Tasmania?
So, they, they get an equivalent land threshold to an individual rate, which is just recently increased from about 100 grand to about $125,000. Um, so it's good that it's equivalent, which means that whether you're buying in your own name or in a trust, if you exceed it, you exceed it. Um, and their taxing rates is not overly, um, overly crazy either. And their land values are quite cheap compared to a lot of the other states around the country as well. So, not a bad, uh, state for, for trust in nature.
All right, and before we go up to Queensland, ACT, obviously that's a little bit of a different one because technically you don't own the land. How does that work?
It's, it's a bit of a leasing fee. So, you, you do have to pay, um, your, your annual rate on a yearly basis, a leasing fee essentially, that needs to be done. It's there to support, obviously, as we've had comments in the past regarding the ACT community, not many people investing in, in Tasmania. Generally speaking, Tasmania, ACT, not many people investing in ACT, typically speaking, because it does go through its peaks and troughs. But yeah, that's, it's something that you want to have a look at. Very unit-dominated market there, especially in the middle of Canberra itself. And as you start to get to the outside surrounding suburbs, it does become, you know, more residential in nature with your blocks of land. But it's got to be very careful because sometimes you might think you're living in, in ACT, but you've got a New South Wales post. So, it's not far away.
No, it's not. It's not. All right, and, and lastly then, oh, actually, I think we still got Darwin. But, um, if we're looking in Queensland, Queensland, we've got really good thresholds there, and it's been the same for a long time. Individuals, by memory, about $600,000. Trusts, by about 350. Is, uh, again, not a grouped, um, structure from a land tax point of view. So, each new trust, as long as it's identified by a new corporate trustee, in most cases, we have a brand new threshold. So, it's a great way to continue to extend the ability not to pay land tax in, in Queensland.
Awesome. And, um, no land tax in Northern Territory for trusts or individuals. So, generally speaking, the territories, there's no land tax.
All right, so as far as land tax are concerned, and, and again, if you're listening on iTunes or Spotify, you're not quite following along with this either, head over to our Instagram or go to our YouTube channel, and we're going to be having this as a slide up on the screen. It would be much easier to actually follow along with. But now, let's talk about distribution of funds, section 100A. Now, there's been a bit of talk about that at the moment. That's something that the ATO is cracking down on. We recently spoke with a tax lawyer about this, saying it's not a, it's not a new rule, this is how it's always been, but they're just kind of looking into using it more now. Can you kind of open that up a little bit more and see, is it, is it just scare tactics, or is it something people really need to pay attention to?
No, definitely need to pay attention to it. The legislation's been active for a very long time. The tax office probably haven't policed it for a very long time as well. But as the dynamic of family is changing in Australia, it's no longer, you know, Mom and Dad, three kids, and maybe a couple of cousins. We are becoming a very diverse culture. And with diverse culture means potentially a lot more family members. Um, but section 100A is really there and derived to stop, uh, someone obtaining a benefit from a trust purely from a tax point of view, and they're actually not really going to be benefiting from that trust in the future.
So, really good example is, you've got Mom and Dad, um, they distribute to their children above the age of 18. And the reason they do that is, yes, because the children are earning lesser income, so there's some tax benefit there that the trust or the beneficiaries are saving as a result of that distribution. But in the end, when Mom and Dad pass away, if the two kids have been good kids, uh, the chances are that the additional wealth that Mom and Dad are being able to derive by reducing the tax on the distribution to the kids, kids are going to get that in the future, right?
Okay, so the government doesn't look at that, or the ATO doesn't look at that and go, "You're doing something." It's like, over a long enough time horizon, it's kind of going to you anyway.
It's going to you anyway. So, the tax that you guys are saving is there for the genuine benefit of the family. It's when you start having, and again, with inside your deed is whatever your deed says. What does the deed say? If the deed allows you to distribute to your fifth cousin, um, then yes, you can distribute to your fifth cousin. But what the tax office wants to see is that the actual money is going in the direction of the fifth cousin. They actually want to see the distribution of funds and that funds hitting that that account of the of the fifth cousin. You're not doing it purely for tax purposes, because the chances are your fifth cousin is not going to be written into your will of receiving a portion of your estate one day if you pass away. So, the tax office are trying to really eliminate, you know, the changing dynamics of family and the ability for people to send money on a piece of paper by way of a trust distribution purely to avoid tax, which is considered potentially part 4A. And that's where there's an overlapping of the section 100A rule. So, I always say to clients that, you know, what is the relationship with this particular family member? Is this someone who is going to be receiving a portion of your wealth in the future? If circumstances change, would you be giving them money if they ever asked for it? Essentially, is this person written into your will? And it sounds like if the answer is yes, you're okay. If the answer is no, well, we want to see that there is a genuine movement of money, uh, going to that particular bank account in line with the trust distribution. So, it's really there to set up that, "Hey, I've got a great opportunity to distribute to my fifth cousin. I haven't spoken to in 35 years, 'cause he's not earning any money. I'll just get him to declare it on his return." The tax office says, "Is there a real benefit that this person is receiving as, you know, receiving this distribution? Are you going to be written into the will? Is this person really part of this trust?" If they're not, you've got to send them the money, even though the deed may say that they are part of the trust, you've got to physically send them the cash, and there can't be any arrangements on a payback because, "I did this for you many years ago." It needs to be an act, a genuine attempt to distribute the money cash-wise, as per what the deed says.
Interesting. So, section 100A really policed now because dynamics are changing. And are you seeing many people actually get pulled up with this, or is this like, most people don't get that complicated?
I haven't really seen most people get this complicated yet. Um, many people don't necessarily talk to their fifth cousins or fourth cousins, and therefore wouldn't distribute the money because that person can make a call for for that money if they've been distributed it. So, the idea is, you know, the trust is there to set it up and distribute to immediate family. That's where these investment vehicles have been set up for, which is to grow the wealth of your family.
Makes sense, right? Then, well, if we're getting towards the, the pointy end of things here, because we've discussed so much in the way of detail, one of the, the final questions, I feel like we've kind of really already touched on this, but about really how, how to know when to get started. And I feel like I could answer that, but I want you to correct me if I'm wrong. Is, you know, when to get started when you've actually got a solid plan that you know is going to exceed that kind of three properties, really?
Absolutely. Or you've got a, a plan for creating long-term wealth. And it could be, you know, some clients have established trusts very early on to contribute $200, $300 a week, and they've set up a 20-year plan to do that into say, various ETFs. If there's a consistency, and this is important, if there's a consistency in you being and wanting to establish a large investment portfolio, then a trust may be really good to do it. After you've got a bit of a feel that that's the direction that you want to take. There's nothing stopping you from, you know, investing in one or two properties individually, or buying a couple of ETFs individually for a couple of years before you say, "This is the journey now that I'm ready to take." And that's when you can start to then move all the future properties or future investments that you're going to make inside your trust or various other trusts.
Final question that's just popped to mind. If someone's listening to this, going, "This is great, I wish I found this out three properties ago," because now I am at six. I want to move them. Capital gains tax is triggered, correct?
Absolutely. Absolutely. So, an arms-length distance valuation needs to be done. The tax office will get their portion of capital gains tax if you do transfer the property over into a separate legal entity, otherwise known as a trust. And you'd have to pay stamp duty, and the trust needs to pay stamp duty. So, very, very, very many circumstances, I think I've done, I've said yes once or twice where it was feasible for a client to do it. Hundreds of other times where I've said no, because the benefit, the cash physical cash outlay that you need to spend today for tax and stamp duty, we're talking hundreds of thousands of dollars. It may take 20 years for you to receive and obtain that benefit back. So, anything can happen. And I don't think it's wise in many people's circumstances, although everyone's very different. But for the most that I've done, the answer has always been no, it's not worthwhile to change what you've done. But it's definitely worthwhile to not follow the same path and choose a different path moving forward.
Now, Jez, if you're up for it, mate, I'd love to hear a few of your questions in the comments section. And if you're up for for jumping in every now and then and seeing if you can answer any of them, because I know that there's going to be a ton of questions. I'm going to try and answer as many as I can, but you're going to be the man to do that properly. Uh, but what's an action step? If there is anything that someone's going, "Look, this is what I want to do." What's the very first thing that they should be able to put into action right now to get this ball rolling?
Action step is, get yourself educated about the trust and educated about your own investment strategy. So, first, if you haven't got an investment strategy, do one. Set out some goals of what you're aiming to achieve and how you're going to get there. Speak to your broker if it's possible, what things you need to implement today. Have a chat with your accountant, get an understanding of what a trust entails for you based on what you're wanting to achieve in the long term and how you see yourself retiring in the future. With dynamics taken into consideration, so if you're a young man or young woman and having children and getting married or or being de facto in relationship is something that you're looking at doing in the near future state, that. Don't be afraid to tell all your, your dirty secrets or or nasty secrets out there because that may change, uh, what happens, especially if there's again, changes in family dynamics. So, your professionals need to know absolutely everything, within reason, of course. And then from that, you'll have the right level of professional understanding, professional education from accountants or solicitors to be able to guide you with your next steps.
Well, I'm really hearing there with the action step is, get the plan together. Plan, then knowledge, and then then you can take action, which is the execution of your investment journey.
Chad, I need to ask you the most important question of the entire show, which you've been asked several times before, but I'm assuming, or actually, I think the answer might have changed considering what you just told me you had for breakfast. Indeed, Jeremy O'Nelli, what is your favorite pizza?
A Margherita Peti, which is a deep-fried pizza for anybody out there. And if you ever get a chance to, uh, come to, uh, to Adelaide, just near Todd's studio there, is a fantastic place. I think I'm going to have a crack at the name. Was Via, V, I think. Via. Beautiful little hole-in-the-wall pizzeria, yeah, that sells the best Margherita Peti I've ever had.
And Peti, I, I have, sadly, have not tried one yet. I think you and I go on there for lunch, by the sands of things. Fantastic. Jeremy O'Nelli, thank you so much for jumping on the show. You're always an absolute wealth of knowledge, mate. Really appreciate your time.
Appreciate it. Thank you, Todd.