Download - Structure your way to success
Master Class:
Structure Your Way to Success
With
David Hows - Real Estate Investar
Tony Lee – Lee & Lee Accountants
We help investors
build and manage
their property portfolios
In partnership with…
Real Estate Investar’s tools
Master class webinars
• Designed to share knowledge.
• Desire to provide extra value to our clients.
• Great for both new and experienced investors.
• Plenty of opportunity for Q&A.
• We will run these regularly throughout the year, and sometimes involve our partners to provide additional insight.
Poll Question
How many investment properties do you own?
Structure Your Way to Success
Connecting the Dots Together
Meet the presenterTony Lee Founder and Director of Lee & Lee
Property tax, investment and business
structuring expert with 20 years experience
in helping small business owner and
property investors structure and protect
their business and investment assets
effectively, minimise their tax obligations
and build wealth.
He has invested in property himself which
means he has faced the same issues that
property investors and developers can face.
As a result, his team has firsthand
experience and an excellent understanding
of finance, strategies, structuring, planning
and timing when it comes to property
investment.
One key message
for tonight:
“It’s NOT about what you make…
it’s about WHAT YOU KEEP!”If you do nothing, you will most likely
end up paying more tax than you need
Who Is this webinar for
Small business owners, property
investors and developers who;
Want to plan to minimise your tax
Want the best way to structure the ownership of
your investments and protect your assets
Want to invest in property with your
superannuation fund and learn the benefits and
risks involved in buying property with an SMSF
What you will learn tonight
Top 5 strategies to maximise your tax
The keys to minimising your tax legally
7 key steps to determine the right structure for
your property investments and developments
How to invest in property with your
superannuation fund and learn the benefits and
risks involved in buying property with your super
in an SMSF;
How to build a property portfolio with your
super and pay little or no tax in retirement
What you will receive tonight
At the end of tonight’s
webinar, all attendees can
download:
eReport “Must know tax
tips for property investors
The opportunity for a
FREE 15-30 minute one-
on-one consultation
5 Top tips 5 Top tips for property investors Depreciation Write off – Scrapping schedule, renovation, ATO
will pay for your scrap on fixture & fittings Tax variation Prepayment of interest & seminar, travel expenses Fully write off on borrowing cost for refinance
5 Top Tips for SMSF You got to have one, Like a tax haven, Control & flexibility Insurance Borrowing (leverage) & residential property Superannuation is a trust structure NOT an investment
There are THREE ways to
lower your tax
To put more of every dollar in your pocket instead of the ATOs!
Negative Gearing – Tax deduction for
interest on income earning investments. Negative gearing is arguably the most generous tax break
available to Australian property investors.
Dividend imputation – Refund of tax paid by companies on profits paid as dividends
SUPERANNUATION – Tax deduction for contributions, low tax on investment earnings
Poll question
Does your current structure minimise tax and protect
your assets?
Case study – Jack & RoseJointly owns 4 investment properties both making $85K & $60K per year
Background: • Happily married couple with no children• Both healthy and fit • Own their PPR with 50% equity and good
saving history• Want to purchase their first 4 investment
properties • Both combined annual income of $145,000
and can save $500 per week• Want to use the equity from their PPR to
build and create wealth through real estate
Case study – Jack & Rose
Goals and Objectives: • Minimise their personal tax • Access to negative gearing and tax
benefit• Not too concern about asset protection • Start building and create wealth• Paying down home loan quickly • Land tax exemption • Easy finance and borrowing• Keep it simple and easy to maintain• Not too complex
Solution:• Buy in personal names (Jointly)
Case study – Jack & Rose
Jack owns 4 investment properties Jack without investment property
$85,164 PAYG earnings($38,855) Rental deductions($22,602) Depreciation & borrowing expenses
$20,872 Tax withheld$43,982 Taxable income$ 6,303 Tax Payable incl. Medical & Flood levy
$14,568 Tax Refund/Savings
Tax Paid 7.40%Tax Savings 17.60% (Before 25%, Extra Monthly Cash flow $1,214
$85,164 PAYG earnings($ 0) NO Rental deductions($ 0) Depreciation & borrowing expenses
$20,872 Tax withheld$85,164 Taxable income$20,094 Tax Payable $777.55 Tax Refund/Savings
Tax paid 23.59% Tax Savings 1.41%
Prognosis
Lee & Lee developmentsHolland Park project
© 2010 Lee & Lee Accountants
Lee & Lee Developments
• Bought land $337K
• DA,BA, Reno Costs $129K
• Construction 2 Duplex (SUD) $330K
• Council fees, Contributions,
& Finance, Interests, GST $183K
Total Development Costs $979K
• Re-value of project $1.5M
(3 properties)
• Nett Equity/Profit $521K
© 2010 Lee & Lee Accountants
A Property
Trust
A Property Development Company
Pty Ltd
Why is this the recommended structure for the Lee & Lee?
What can be achieved under this structure:Asset Protection – Protection of all private family assets, including family home in the event of litigation or personal bankruptcy;
Tax Minimisation & Flexibility - Maximum flexibility in determining and distributing taxable profits and capital gains to family member, other loss trusts so that ultimately the minimum amount of tax is paid
Succession Planning – Maximum options and minimal CGT/stamp duty when the property is transferred to the next generation
Dream Retirement Lifestyle
Be Comfortable
FREEDOM
$1.5M
Passive Income
How Would Your Retirement Lifestyle Be Different?
Living The Dreams
Feel Safe & Secure
$1.5M in
Retirement!Retirement is a
journey,
not a destination
2040
Financially independent
2013
Private schooling for the 3 kids
2025
France for 6 months
Financial road map
2020
Mortgage Free
2030
Holiday Houseat Gold Coast
Aussie Hugh now needs
to decide how he intends
to get there, by when,
how much it will cost and
what risk he is prepared
to take
1 in 100
chance of
an accident
18 Hours
$200 + petrol +
accommodation
1 in
20,000
chance
of an
accident
2 Hours
20 minutes
$300
1 in 1,417
chance
of an
accident
83 to 100
Hours
1 in 50,000
chance of
an accident
25
Hours
$392
AUSSIE HUGH (40) now needs to decide how he
intends to get there, by when, how much it will cost
and what risk he is prepared to take.
Retirement with
$100,000 in
today’s dollars
lasting until 100
years old
Retirement
age 75
Growth
Cost & Return
Risk over 1 to 2 year
Passive income
required…
“Why Structuring?”
First financial battle
Making the money
Second financial battle
Keeping the money
Interesting statistic
“97% of all millionaires made their money in real estate…but 79% of those individuals lost their wealth because they didn’t structure their investment properties correctly”
Fortune Magazine
© 2010 Lee & Lee Accountants
Where does your money go?
Your income
© 2014 Lee & Lee Accountants
Tax47%
You53%
Where does your money go?Your Income
© 2014 Lee & Lee Accountants
Tax30%
You70%
Where does your money go?
Your income
© 2014 Lee & Lee Accountants
You85%
Tax15%
Where does your money go?Your income
© 2014 Lee & Lee Accountants
You100%
WRITTEN PLANUNWRITTEN PLAN
5 Secrets of successPurpose, Passion, Planning, People & Persistence
© 2010 Lee & Lee Accountants
Fun
ConcernExperience
Invest in property & developments
Fun Success!
Poor structure, unexpected expenses,
bad JVs, business scams, ATO audit
Business booming, making lots of money
Bankruptcy,
Divorce,
Broke,
Jail
Go
od
Tim
es
No
t So
Go
od
Tim
es
BA
Financial success plan
Property
Investment &
Development Plan
Taxation
PlanDebt Plan
Get Financially Organised
Asset
Protection Plan
& Structures
Goals &
ObjectiveSuperannuation & Retirement
Plan
Estate &
Risk Plan
Business
Plan
© 2014 Lee & Lee Accountants
Executable plan & strategy
Investment Property 1
Investment Property 2
PrimaryPlace of
Residence
Investment Property 3
Net wages Tax Super
Start (optimise)
$2M (now) $16M (Total freedom)$8M$4M
Saving & investing (growing) Goal accomplished
© 2014 Lee & Lee Accountants
Investment Property 4
SetGoal
Create plan
STICK TO Plan
Property
Tax & finance
Family super
Risk & education
Personal development
Structure
OWNERSHIP STRUCTURE COMPANY & TRUST & SMSF
Commonly used tax structures
• Individual (Up to 45%)
(Plus Medicare levy / temporary flood levy)
• Partnership
• Company
• Trust (Different types of trust)
• SMSF (It’s a structure not an investment)
Give super a go
TrustDistributes to
Individual, Trust & Company
Company Pty Ltd30%
© 2014 Lee & Lee Accountants
SMSFEarning 15%
Capital Gains 10% Pension Phase
0%
Keys to determine the right structure
© 2014 Lee & Lee Accountants
Asset protection1Limited liability protection
Tax minimisation Flexibility
Total control & privacy
Succession planning Effectiveness
Finance & land tax
Complexity & costs
2
3
4
5
67
What is the correct structure for your personal situation?
7
Master plan for your wealth
A
Trust
A Company P/L
ABC
B
Trust
B Company P/L
ABC
C
Trust
C Company P/L
ABC
D
Trust
D Company P/L
ABC
E
Trust
E Company P/L
ABC
PROFIT Distribution
PROFIT TAX LOSS PROFIT TAX LOSS PROFIT
PROFIT Distribution
© 2014 Lee & Lee Accountants
Master plan for your wealth
Phase 1
Phase 2Master Trust
A Master Company
Bare Trust
Trustee Company
Super Fund
SMSF Company
IP Phase 3
© 2010 Lee & Lee Accountants
Lee & Lee developmentsAnnerley Project “B”
Lee & Lee developments
• Bought land $1M
• DA,BA, other costs $37K
• Construction 5 townhouses
& House renovation $1.12M
• Council fees, contributions,
& finance, interest, GST,
Strata & contingency $258K
Total development Costs $2.4M
• Re-value of project $3.2M
(6 properties)
• Net equity/profit $800K
Annerley Project “B”
What was your real intention?
Consider
Property investment & development
Need to consider
Income tax
CGT
GST
Land tax
Stamp duty
Property development agreement model
Smart Property
Developer
Alan PropertyHolding
Trust
Alan Property Owner Company Pty Ltd
© 2014 Lee & Lee Accountants
Bruce Property Developer & Project
Management Company
Pty Ltd
CharlieInvestment
Holding Trust
Charlie Investor
Company Pty Ltd
Accountant Land Owner
A Property
Trust
A Property Development Company
Pty Ltd
Why is this the recommended structure for Adam and Eve?
What can be achieved under this structure:Asset Protection – Protection of all private family assets, including family home, in the
event of litigation or personal bankruptcy;
Tax Minimisation & Flexibility - Maximum flexibility in determining and distributing taxable profits and capital gains to family member, other loss trusts so that ultimately the minimum amount of tax is paid
Succession Planning – Maximum options and minimal CGT/stamp duty/Land tax when the property is transferred to the next generation
Commonly used tax structures Single developer with a JV partner
© 2014 Lee & Lee Accountants
ABC Property Development
Company Pty Ltd
A Property Development
Company Pty Ltd
B Property Development
Company Pty Ltd
A Family Trust
B Family Trust
ABC Unit Trust
Commonly used tax structures 2 family groups - JV deal
© 2014 Lee & Lee Accountants
A Property Development
Company Pty Ltd
B Property Development
Company Pty Ltd
B Family Trust
A Family Trust
Appropriate record keeping
It’s TAX Time
Investment Propertysa
veTA
X
REMEMBER“It’s NOT about what you make…
it’s about WHAT YOU KEEP!”
WHYDo you want to maximise how much of your
income you keep, so you can confidently
plan your retirement and save tax?
7 Most Common Mistakes
Depreciation
Interest expenses
Borrowing costs
Discharge finance costs
Land tax
Travel & home office
Capital gains/PPR
1
2
3
4
5
67
Think Differently
Poll question
Are you interested in investing in property
with a SMSF?
© 2014 Lee & Lee Accountants
Tax differently
Accumulation Phase
15%(Max )
Pension Phase
0%(Max )
Benefits of family super fund
FullFlexibility
&Leverage
(Ability to Borrow)
CONTROLInvestment
ChoiceTax
EffectiveAsset
Protection
© 2014 Lee & Lee Accountants
It’s tax freeIt’s works like
magic
It’s beautifulIt’s controlled
by you
The magic of structure
How the SMSF borrowing structure strategy works
HoldingTrust (Legal
Ownership)
Corporate Trustee
Holding Company
Self Managed Super Fund
SMSF
SMSF Corporate
Trustee Company
Lender• Bank • Member or • Related Party
Provides SecurityTo Lender
Lender Provides65-80% Mortgage To SMSF Non recourse
(LRBA)
Rental IncomeRental Expenses
Including Depreciation
SuperContributions Roll OversRental Income
Declaration ofTrust,
Holds Legal Title while
Borrowing Exists
Legally owns the property (SMSF is sole beneficiary and has absolute entitlement to bare trust property)
SMSF makes Loan Repayment
What can be achieved under this structure: Owning an Income producing asset in the lowest tax environment Have ability to create greater after tax wealth More after tax dollars kept to reinvest or reduce debt Debt can be paid off faster before retire The faster a loan is repaid the less interest is charged and paidMore saving and reinvesting for retirement for a better financial future
Poll question
How much super do you currently have?
Background:• Happily married couple with 2 children • Both healthy and fit • Own their PPR with 75% equity and have automatic saving strategy• Have already got 5 investment properties worth $2 millions• Want to do their first duplex deal in Brisbane with buy and hold long term
strategy• Both combined annual income of $200,000 from their successful
consulting business• Both have combined superannuation balance of $300,000• Want to use the equity from their PPR to build more wealth through
property development • Already found a suitable site • Already have available equity to draw down• Already have finance approval for the development
Case study three – Adam & EveOwns 5 investment properties
Goals and Objectives: • Accelerate and fast track their wealth creation • Require control and asset protection is essential • Tax efficiency and flexibility with income & capital gains • Buy, develop and hold long term for capital growth
Solution:• Buy in a company/trust structure
(GST implications to consider)
Case study three – Adam & EveOwns 5 investment properties
Set up automatic savings
© 2014 Lee & Lee Accountants
j
j
Retirement 10% pay yourself first1
Emergency 5%
6-12 months expenses
Dream holidayPay off home
Credit cards, bills, investments & charity….
3
4
5
Income (MSI)
Bank Account
2
Strategy #1 The Fast Tracker
What can be achieved SMSF property borrowing strategy: Owning an income producing asset in the lowest tax structure in 10 years Creating $1,500,000 for retirement and have a peace of mind
AutomaticSavings Strategy
And you can tackle these problems..
© 2014 Lee & Lee Accountants
• The need to support your family
• Reinvesting back in your business
• Pay too much tax
• Saving for retirement to fund your lifestyle
The biggest struggles everyone faces
There is a
to legally reduce taxes
Imagine yourself
20 years from now
What are
your goals
&
objectives?
What’s the
goal?
E.g.$1.5M
dream
retirement
You are here today…
Freedom Gap
© 2010 Lee & Lee Accountants
What’s your next step?
We help you make smart financial decisions and connect the dots together and create a
remarkable future!
Special REI client offer
A complimentary 15-30 minute strategy
session with Tony Lee on getting the right
structure in place and taking control of
your financial future. Using an SMSF
property strategy can help reduce your tax
and increase your wealth.
Limited to ONLY 25 consultations
First in best dressed!
info.realestateinvestar.com.au/leeandlee
REMEMBER“It’s NOT about what you make…
it’s about WHAT YOU KEEP!”
Q&A session
Limited to ONLY 25 consultations
info.realestateinvestar.com.au/leeandlee