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Steady,
The type of trust you are interested in is a hybrid trust. Basically it is a mix of a unit trust and a discretionary trust.
It works in that the you purchase special income units in the hybrid trust. This trust then purchases the property. The property is trust property, hence asset protection, and then the income from the property is distributed to you (after taking into account outgoings).
You can then claim the interest on the loan against the income from the trust.
Make sure the accountant you speak to knows about hybrid trusts.
I agree with Terry. It sounds as though this accountant knows very little about hybrid trusts. The question I would be asking them is why should you carry forward the losses when you can utilise them through the use of a hybrid trusts. I would rather have the funds in my pocket for the years that it is negatively geared than to have them carried forward in a trust. Talk to your accountant about the ability of a hybrid trust to issue special income units and the impact of this for structuring purposes. If they look blank then go elsewhere.
Secondly Terry is correct. I would not be recommending two directors at all. The old adage woman of substance and man of straw applies here (well as I tell my clients in this day and age it can be vice versa) but anyway you should make sure things such as your family home and personal assets are in your name (you are less likely to be sued) – be careful of stamp duty implications of transfer of any existing assets. And your husband should be ensuring he has as little assets as possible. Most of my clients are happy that the husband is only worth $500 and the wife is worth hundreds of thousands. Go Girl Power !!
Thirdly if the accountant mentions CGT on the redemption of the units by the bybrid trust then you can discuss capital vs special income units with them. Care must be taken as to the rights attaching to units whose redemption constitutes a disposal by virtue of CGT event C2 under s.104-25.
In particular if income units (under which the unitholder has no rights to capital and/or capital growth) are redeemed, then it could be argued that no capital gain would accrue to the unitholder. Make sure your trust deed is drafted correctly.
I think it is time for a second opinion.
The transfer of an interest in real estate does result in a change of beneficial ownership. In this situation, you have gone from owning a 100% interest in Property A to owning a 99% interest in that same property. This results in a disposal of 1% of your interest in Property A. The disposal of an asset is a capital gains tax event A1 (section 104-10 of the ITAA 1997).
Capital proceeds is consideration you received upon the disposal of your 1% interest in Property A. There are modifications to this general rule where you do not receive any consideration. Under this modification, you are taken to have disposed of your interest in Property A at market value on the date of disposal (section 116-30 of the ITAA 1997).
The cost base is made up of five elements. Generally, the cost base is the amount you paid to acquire the relevant assets plus any expenses you incurred in acquiring and disposing the asset. As you are only disposing of a 1% interest, only 1% of the acquisition cost and incidental cost of acquisition form part of the cost base. Please refer to page 5 of the Guide to capital gains tax 2003-04 for further information on your cost base.
You will also be eligible for other capital gains tax concessions if Property A has been held for longer than 12 months. Please refer to page 14 of the Guide to capital gains tax 2003-04 for further information.
You will need to see your accountant to provide further information and for them to calculate your CGT liability.
Ead,
You firstly need to determine whether the profit on sale of the property development will be classified as income under Section 6-5 of the Income Tax Assessment or the mere realisation of an asset and therefore assessable under the Capital Gains Tax legislation.
This is the first question you need to answer before determining the treatment for tax purposes. Determining this is based on case law and your particular circumstances. Suggest you consult with a tax advisor before entering into the transaction or realising your profits.
