What are the issues with tainting, if I have already established a discretionary trust (for the buy and hold IP’s) and I establish a trading trust (for the capital gain IP’s), will I still get tainting and what can I do to prevent it? What at the actual implications of tainting?
Thanks
Hi,
The issue with ‘tainting’ is that the tax-free status of capital gains is compromised. They are taxable, in other words.
Where there is an association between the persons owning each of your Trusts, any rental properties purchased after the property trading commenced will have the capital gains tainted for up to ten years.
If the properties are sold within ten years, then the capital gains are taxed. Any capital gains on properties owned prior to the property trading activity will remain untaxed.
The way to avoid the associated persons test is to have some difference between the owners of each Trust, so that when considered as a group, the group of trustees in one Trust cannot be considered to be related to the group of trustees in the second Trust.
In practical terms, this means having an independent trustee join in with the trustees of one of the Trusts.
If you can find one, good luck to you. Most independent trustees will not jump at the opportunity to make themselves personally liable in a trading Trust.
You are more likely to find someone willing to be the independent trustee in a property owning Trust, and you can conduct any property trading in a company, where you are the directors.
Christopher Raynal
Master Accountants Group Limited
PO Box 46018 Herne Bay
Auckland New Zealand
Ph +64 9 360 3259
Fax +64 9 360 2180
http://www.masteraccountants.co.nzgood post
most of this type of trust arrangement must be organised by an accountant and a good one at that.
There are alot of types of trust and are used for different purposes if you have got this far you or the person who set up the trust knows why you set it up.
Not sure about nz tax rules but it a good idea when you have setup this structure to pass it past the ato.
When using trusts its adviseable to separate the people with in the trusts and try not to have common entities across different trust with in the same group( this may sound gobaldy gook to some people but thats accounts).I can explain further if you send me an email but the accountant who set it up should be able to help.
here to help
Thanks!
I am establishing a discretionary trust for the buy and hold properties, but in the interim I was thinking of trying my hand at rennovation, which would be a faster turn around, and therefore better placed in a trading trust!
Now I know the risk and I can weigh that up better.
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