CIA,

It sounds like you are planning to rent out a home that was your principal place of residence.

The house is in your name only.

Also, you are thinking of “selling” the home to a trust that you will establish.

Am I right so far? I will keep going on the assumption that I am.

Finally, the reason you present for selling to the trust is to reduce your tax liability from the rental income by offsetting interest income against it.

Still correct so far?

Here are the issues you will encounter with your plan:
– stamp duty on the transfer to the trust UNLESS there is no change of beneficial ownership. IE: if you are the sole beneficiary of the trust. However, if you are the sole beneficiary and also the trustee (even via a company where you are sole shareholder) there is no trust. Check with your lawyer but I think you will find you will trigger a stamp duty event in order to be able to establish a trust.
– you don’t state what you are going to do with the money you borrow in order to create an interest deduction to offset the income. If you DO NOT use that money for investment purposes then the ATO will disallow the interest deduction regardless of which entity (you or the trust) incurs the interest expense. Kinda defeats the purpose of what you are trying to do.
– the property being your principal place of residence is CGT exempt. Transferring to the trust will make it eligible for CGT and getting the highest possible valuation really only fiddles at the margins.

I would strongly recommend you get a good accountant and have a rethink about your motivations and purpose for doing this. It sounds like you are making a decision to avoid tax. This is not the best reason for messing about with trusts, etc, particularly if you may have your deductions disallowed anyway.

The usual and best reason for trusts is for asset protection. Moving assets about as you propose is usually only done to protect the property against some future ill-event.

Another alternative to moving the property to a trust for asset protection is to mortgage it to the hilt and invest the loan funds in another property that you do buy in a trust. Your property outside the trust will have the bank standing first in line in case some shark lawyer wants to try and attack it. This is a classic case of where debt is your friend.

Karl

–