Hello All,
I'm not sure what implications i'm going to have and how bad i'm going to be hit up with taxes, but i'll give you the rundown of the current situation.
Property A – Purchased and lived in for 1.5 years (as PPOR), then rented it out and it's been an IP for 2 years.
Property B – Just purchased (not settled yet), plan is to rent it out for 1-2 years and pay off as much as possible before moving in to live, this will be my PPOR later but investiment from day 1.
Property A – Purchased in my name.
Property B – Purchased in a family trust with a trustee company.I want to sell Property A in 12-24 months (as the market is cr@p!) before moving into Property B and use all the released equity to payoff most of the loan.
I'm worried on what CGT implications i'm going to have as Property B will be rented from day 1, and what CGT issues i'll have selling Property A as it's been an investment for the past 2 years.
What i would like in the end is my PPOR (Property B) in my family trust.
Anyone got any game plans to minimise any tax issues?
Mega thanks in advance.
Properties owned by a trust do not get the main residence CGT exemption. You probably won't get the land tax exemption either. What state is it it?
Does the trust deed allow a beneficiary to live in the property without paying rent? if not then you may find you will have to pay rent to your trust with there being a taxable profit which would need to be distributed to beneficiaries which could mean you end up paying extra tax on what would otherwise be a tax exempt purchase.
So it could end up in a triple whammy – income tax, CGT and land tax.
Why purchase B in trust if you intend for main residence?
What sort of trust is it?Make sure you set up the estate planning side of htings too – succession of the appointor of the trust. Trust assets won't form part of your estate on death.
Property A could probably be sold CGT free
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
Hi Terry, Thanks for the quick responce, much appriciated.
My state is Victoria and it's a discretionary trust that was setup by my accountant (purchased from a law firm).
The deed does have the following clause:
To allow use in specie:
(a) To permit any beneficiary under this deed to use any real or personal property subject to these trusts upon such terms and conditions as the trustees may from time to time think fit.I would assume that means i could live there rent free?
The main goal of the trust was for long term asset protection (creditors etc). I do understand that 'sections' eg loans may be exposed in some situations, but only being in my 20's, i don't plan to be a director until 30's which should alliviate some of this.
I thought i read somewhere on the SRO that you can nominate 1 PPOR in this type of trust for the CGT exception?
hi Q
For stronger asset protection you would have to plan how you set things up. There are ways a trust can be attacked. Gifts to a trust can be clawed back for example. A trustee acting for the trust without remuneration could also be attacked under the bankruptcy act. as can uncommercial transactions designed to defeat creditors.
If you are the trustee you should probably lodge a caveat as soon as settlement occurs to show you own as trustee. This will help distinguish it from your personal assets. Make sure the trust has a separate bank account and don't use it as if it was your personal bank account. All your wages for example shouldn't go in the trust account but into your personal account. You could gift money to the trust but don't keep taking it back to use personally.
Also don't declare the house as your own asset on future loan applications etc – because it won't be yours.
There are no CGT exemptions for a trust house (unless from a deceased estate in some cases).
Don't know about land tax in VIC. You could look thru the Duties Act and see what you can find..
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
Would remuneration be required at a specific rate? Could $1 a month cover that aspect?
Would i be registering the caveat as the trustee company or my own name (as i have a trustee as a company)?
My accountants explained i need to keep the finances separate and mortgage repayments will need to go from personal account to trust account then paid to keep finances independent and keep the balance sheet neat.
I suppose I'd need further legal advice to get the strongest protection, i mean i don't plan to do anything dodgy but you never know what will happen. Can i get the legal advise done after this is in the trust etc? I've don't think i have time before settlement to find/see solicitors to restructure/re-plan.
I suppose all this should be better than putting it in my own name anyways.
anthonyq wrote:I thought i read somewhere on the SRO that you can nominate 1 PPOR in this type of trust for the CGT exception?
The SRO wouldn't talk about CGT, as the ATO is the body responsible for determining who has to pay CGT. Perhaps the SROP was talking about an exemption for land tax?
To qualify for the main residence exemption from CGT, the owner of the dwelling must be an individual.
ideally you should be getting advice before you enter into transactions.
If you have a company then you may not need a trustee as there is a clear separation of the legal owner from yourself. Just make sure the company does nothing other than act as trustee.
Any remuneration would have to be at market rates. But if the trust has only one property the market rate for running it may not be too much.
Also, you will be living there rent free – so that would be an undermarket value transaction. Discuss this with your lawyer. You should read the bankruptcy act, esp look for claw back provisions and undermarket value transactions etc. ss120-121 in particluar.
You should also read the corporations act for the same – tho this is absolutely huge.
Why not talk to your accountant about paying market rent to your trust? The trust can then claim a deduction for all expenses.
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
Land tax could be exempt:
http://www.austlii.edu.au/au/legis/vic/consol_act/lta200590/s54.html54. Principal place of residence exemption (1) Subject to this Division, the following land is exempt land- (a) land owned by a natural person that is used and occupied as the principal place of residence of that person; (ab) land owned by a person that is used and occupied as the principal place of residence of a natural person who has a right to reside on that land; (b) land owned by a trustee of a trust that is used and occupied as the principal place of residence of a natural person who is a beneficiary of the trust.
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
Thanks Terry, gives me some idea's to talk about with the accountant.
His pretty switched on but i can't call him until i finish collecting paperwork for last years tax return (almost ready!) otherwise he'll break my chops!
Thanks again.
& Dan42, your right that makes more sense.
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