Hi guys, first time post so please bear with me.
Firstly, my partner and I (not married) have each recently purchased a property of the plan and each property is in a single name and not joint.
We are considering setting up a Discretionary Trust, with the trustee being a new company and the beneficiaries being each of us and another new company.
Reason being that she is on $60K and myself on $80K. Hopefully through the DT, we can both realise an $80K income and the balance transferred to the beneficiary company as the tax rate increases this year for individuals to 32c for our tax bracket . I believe the company rate remains at 30c.
Does this make sense and is it wise or even possible?
Also, could the trustee company also be a beneficiary and would it be wise or at all practical?
Secondly, since each of us have already signed now unconditional contracts to purchase a property each in our own names, could and should they be transferred to the trust?
Also should add that all 3 assets will incur a significant capital gain in the first 12 months, with one being sold within the first 12 months.
If for the first year, the company did not achieve a benefit from the trust, or even if it did, what would the effect on CGT be?
What would the CGT effect be in the same scenario, but for properties owned longer than 12 months?
Setting up a new trust to hold assets now & to transfer those which you already own or are purchasing will cause you to pay stamp duty on the transfers. Not sure if the cgt discount applies to the trust but it would need to hold the assets for 12months to get any discount on cgt BUT you would trigger a cgt event when you transfer your assets to the trust.
Consider all these costs before transferring them to the trust
Agree with Scott, if only you had this in place before signing the contracts. Setting up trusts and transferring now means you will incur two sets of stamp duty, per property.
CGT in trusts is determined by the beneficiary. If the benfisiary of the capital gain is a company, then no discount is available. If it is distributed to individuals, then the discount is a allowed, if the asset has been owned for longer than 12 months by the trust.
Based on what you have said about it would probably not be worth doing for a few reasons:
1. Stamp duty on the onsale to the trust
2. Less asset protection because you are transferring
3. Your top tax rate is 32.5% whereas a company would be 30%
4. Good idea not to have the trustee as a beneficiary for stamp duty reasons, in NSW at least.
5. When selling it would be be best to get the gain in your own hands rather than a company as individuals pay only at max of 45% tax, less the 50% CGT discount = 22.5% plus medicate levy. If you distribute to a company 30% with no 50% discount.
If one property in one name it could have enabled you to split the capital gain between the both of you, but I think it would be too late to implement now.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Sounds very late in the piece like Terryw says.
For best results you should discuss your plans with your accountant, lawyer, & broker before executing.
Get prepared and organised for your next deal, paying stamp duty once is bad enough!
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