Hi all,
Firstly, I apologise if this is the wrong section of the forum to post this in. However, it seems like the right place.
This is yet-another-question-about-discretionary trusts. I have searched the forums, and indeed there is a lot of material about this subject matter, but I am still left with this question.
Basically, I want to buy a principle place of residence in a company name, but with the shares of that company held in a discretionary trust for asset protection purposes.
I know this means that there's no 50% discount on CGT etc. But with trusts, as I understand the position, there is a law against perpetuities, which means that all assets held in trust needs to be vested within 80 years of establishment of the trust (or the trust be resettled along with stamp duty tax payments).
No doubt, this would pose no problems if the purpose of purchasing the property was for investment purposes (if I wanted to make the company as trustee). But for the case of purchasing it for a principle place of residence, I don't want to cause headaches later on.
I also wouldn't intend to sell the property purchased for principle place of residence. No doubt this is why CGT concerns are not the main focus of my agenda.
I understand that having company shares in trust would mean that if the trust was resettled at the end of the 80 years, then there would be less stamp duty than resettling a trust which has the company as trustee.
So my question is, who would be the trustee of the shares of the company? Would it be possible to establish another company to hold the shares as trustee of the shares in the company that owns the principle place of residence? Or have I misunderstood the position?
What would be the advantage in doing so, as opposed to having a person as trustee to hold the shares of the company?
Thanks
The holder of the shares would be the trustee of the trust. This would generally be another company or individual(s).
Disposal of shares by a trust would result in CGT and stamp duty in some states. As the discretionary trust must vest then this will result in the CGT down the track too.
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 your reply.
Regarding:
Terryw wrote:Disposal of shares by a trust would result in CGT and stamp duty in some states. As the discretionary trust must vest then this will result in the CGT down the track too.I am in NSW. I'm not sure if CGT and stamp duty applies.
However, if I understand the situation correctly, the CGT and stamp duty would be payable on the shares, which would be lower in value than the value of the property that is the principle place of residence. Or is that incorrect?
I'm not in SA, so I don't think the PIT is viable for me. As I said, asset protection is my main concern.
Thanks
Tate wrote:Hi terry,Thanks for your reply.
Regarding:
Terryw wrote:Disposal of shares by a trust would result in CGT and stamp duty in some states. As the discretionary trust must vest then this will result in the CGT down the track too.I am in NSW. I'm not sure if CGT and stamp duty applies.
However, if I understand the situation correctly, the CGT and stamp duty would be payable on the shares, which would be lower in value than the value of the property that is the principle place of residence. Or is that incorrect?
I'm not in SA, so I don't think the PIT is viable for me. As I said, asset protection is my main concern.
Thanks
CGT is a commonwealth tax so no matter where it is there would be tax payable. Stamp duty is state based, in NSW you would pay 0.6% stamp duty on the transfer of the shares which would be much less than transferring title to the property. Also stamp on shares in private companies are supposed to be abolished at some time – possibly next july.
The PIT is nothing special. Any trust properly set up in SA would potentially have the ability to have no vesting date – however this doesn’t mean they won’t need to vest after 80s
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
Terryw wrote:CGT is a commonwealth tax so no matter where it is there would be tax payable. Stamp duty is state based, in NSW you would pay 0.6% stamp duty on the transfer of the shares which would be much less than transferring title to the property. Also stamp on shares in private companies are supposed to be abolished at some time – possibly next july.Thanks Terry.
Would the stamp duty abolishment affect all companies established after July next year? Or would it affect companies all companies irrespective of when established?
Also, do you know how the shares in a private company are valued? Because, when one establishes a company, they issue $1 (or so) shares. What happens if someone sells those shares to someone else for $1? (in terms of CGT and stamp duty calculation)
Thanks again
Tate wrote:Terryw wrote:CGT is a commonwealth tax so no matter where it is there would be tax payable. Stamp duty is state based, in NSW you would pay 0.6% stamp duty on the transfer of the shares which would be much less than transferring title to the property. Also stamp on shares in private companies are supposed to be abolished at some time – possibly next july.Thanks Terry.
Would the stamp duty abolishment affect all companies established after July next year? Or would it affect companies all companies irrespective of when established?
Also, do you know how the shares in a private company are valued? Because, when one establishes a company, they issue $1 (or so) shares. What happens if someone sells those shares to someone else for $1? (in terms of CGT and stamp duty calculation)
Thanks again
Tate, it would apply to transfer of shares. Establishment date wouldn’t likely affect things – but it may not come in as it was supposed to be abolished 2 years in a row and has been pushed back. Victorian company shares can be transferred without duty i believe.
Value of shares would depend on the value of the company and this would depend on the value of the land owned by it. For CGT and stamp duty it is the market rate that counts not the transfer amount.
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
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