Buying a property through a trust - FHO / stamp duty / CGT implications etc

A

aweb031

Hi all,

My husband & I have just put in an offer on our first home, so all very exiting, though we are running into some legal issues. Husband is an contracting engineer and runs the risk of being sued personally for his work (& while he does have professional indemnity insurance the limit is not that high), so we were thinking of buying the house (which we plan to live in) through a discretionary trust with a corporate trustee. Though my understanding is when we sell, we won't get the main residence exemption for CGT - is there any way around this?

Also, we are first home buyers, so we want the stamp duty exemption (the house is in QLD & we will pay less than $500,000 for it) - do we still get this through a trust?

Any thoughts/comments much appreciated.

Anna
 
All the stamp duty exemptions and main residence CGT exemption require the buyer / owner to be natural persons, which excludes trusts.

Is buying it only in your name an option?
 
Why not buy in your name?

If in the trust you will have problems such as:
- deductibility of interest
- Land tax issues
- no CGT exemption
- no FHOG
- legal and tax complexity
- asset protection issues - who is paying the loan? how do you set it up etc
 
Only natural persons can get the grants. Otherwise everyone will establish a company which will then be a 'first' home buyer :)
 
ozsupra said:
Please explain?
Click to expand...

Assuming there will be a loan on the property, would the interest be deductible if it is a domestic situation? The answer is maybe...

Will the house owned by a trust be entitled to a land tax free threshold? Not in NSW unless it is a fixed trust. QLD has different rules and the answer for QLD is maybe...
 
Thanks everyone for all the responses, it's much appreciated :) (I was waiting for an email telling me someone had responded otherwise would have done so sooner).

Terry / Alexlee I think the next step is to look at buying in my name only - however, I suspect we will run into issues, as both myself & my husband are considered "casual staff" so we already require a 20% deposit (i.e. the banks won't even consider us with less (even if we were to get mortgage insurance), so suspect there may be other conditions as well, but may as well try!

Thanks again
Anna
 
casual employment isnt an issue with many lenders if you have been at the same role for more than a year. You can also both be used to service the loan with a spousal guarantee. Not sure what implications this might have for asset protection though.
 
Aaron_C said:
Only natural persons can get the grants. Otherwise everyone will establish a company which will then be a 'first' home buyer :)
Click to expand...

I personally think they could look at the people behind the trust / company to see if they qualify for FHO status / main residence exemption etc - as its not really fair that to access these benefits we lose out on the asset protection side. So we may have to look at option 3 (if putting in my name doesn't work) - i.e. increasing his professional indemnity insurance...
 
aweb031 said:
Thanks everyone for all the responses, it's much appreciated :) (I was waiting for an email telling me someone had responded otherwise would have done so sooner).

Terry / Alexlee I think the next step is to look at buying in my name only - however, I suspect we will run into issues, as both myself & my husband are considered "casual staff" so we already require a 20% deposit (i.e. the banks won't even consider us with less (even if we were to get mortgage insurance), so suspect there may be other conditions as well, but may as well try!

Thanks again
Anna
Click to expand...

Hi Anna

If you cannot qualify in your own name then using a trust won't help, int getting finance, as the lenders look at the people behind the trust.
 
tobe said:
casual employment isnt an issue with many lenders if you have been at the same role for more than a year. You can also both be used to service the loan with a spousal guarantee. Not sure what implications this might have for asset protection though.
Click to expand...

I have been with the same employer since Nov 2010 BUT only casual with that employer since Feb 2012 (so don't know if that makes any difference). My husband is also with a new employer (since about April/May this year), BUT we are both professionals and both have good income / savings history, so I'm hoping it won't a problem - we have only spoken to one bank so far just to see if there were any issues, will talk to a mortgage broker shortly :) will look into the spousal guarantee as well, thanks.
 
Terry_w said:
Hi Anna

If you cannot qualify in your own name then using a trust won't help, int getting finance, as the lenders look at the people behind the trust.
Click to expand...

Hi Terry - no we do qualify in our own name, the trust was just for asset protection for my husband...
 
aweb031 said:
I have been with the same employer since Nov 2010 BUT only casual with that employer since Feb 2012 (so don't know if that makes any difference). My husband is also with a new employer (since about April/May this year), BUT we are both professionals and both have good income / savings history, so I'm hoping it won't a problem - we have only spoken to one bank so far just to see if there were any issues, will talk to a mortgage broker shortly :) will look into the spousal guarantee as well, thanks.
Click to expand...

Your employment probably isn't an issue as you've got a long term history with the employer.

Is your husband casual or a contrator? If he's casual then I've got to wonder why he needs to provide his own PI insurance?

I can think of a few banks who wouldn't want to consider an application, but I can also think of a few banks that probably would.
 
PT_Bear said:
Your employment probably isn't an issue as you've got a long term history with the employer.

Is your husband casual or a contrator? If he's casual then I've got to wonder why he needs to provide his own PI insurance?

I can think of a few banks who wouldn't want to consider an application, but I can also think of a few banks that probably would.
Click to expand...

Slightly confusing in that he is a casual with his employer (so you're right doesn't need PI insurance there), BUT he is also running his own contracting business on the side - its small at this stage, but he is intending to grow this & eventually move more into his own business, hence the need for PI insurance.
 
This is a slightly disturbing article: http://www.laclawyers.com.au/docume...-from-a-spouse-in-bankruptcy-proceedings.aspx

Basically saying that putting the house in one spouse's name may not actually help... though in both cases the house was originally purchased in both names then later transferred to either just the wife or in the second case, they changed the type of ownership. So on that basis, if the house was ORIGINALLY purchased in just my name it MAY be ok.

We're just trying to make sure everything is as secure as possible, as my husband says its only a problem if he's negligent and gets sued and as far as he's concerned (like all males ;) ) - he thinks he's a good engineer so it shouldn't be a problem!
 
That does make it a bit convoluted. It's probably a good idea to lay it all out to a good broker who should be able to help. There's likely quite a few factors to be considered before finding the most appropirate lending option.
 
aweb031 said:
This is a slightly disturbing article: http://www.laclawyers.com.au/docume...-from-a-spouse-in-bankruptcy-proceedings.aspx

Basically saying that putting the house in one spouse's name may not actually help... though in both cases the house was originally purchased in both names then later transferred to either just the wife or in the second case, they changed the type of ownership. So on that basis, if the house was ORIGINALLY purchased in just my name it MAY be ok.

We're just trying to make sure everything is as secure as possible, as my husband says its only a problem if he's negligent and gets sued and as far as he's concerned (like all males ;) ) - he thinks he's a good engineer so it shouldn't be a problem!
Click to expand...


Thats what I was alluding to above. Where a house is purchased in the wife's name and the husband's money is used as deposit and the husband pays the loan then it would be the husband's property or at least 50% his property. The courts could construe that the wife is merely acting as trustee for the husband - they can impose a trust where no express trust had been established.

But asset protection will be much stronger than owning the house 50/50 as a trustee in bankrutpcy may just stop there. Even if they wish to proceed further it will be very difficult and costly for them so they may not proceed. Creditors also don't like to spend money chasing something they may not get.

And you can strengthen things by making sure the husband has as little input into the house as possible. (this may help you in any future family law proceedings too!)
 
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