CGT for the units I develop

Hi guys,

I am looking at a muilti-unit development site and going to use a family trust to settle it and this will be my second development project. The family trust has a PTY as the trustee and beneficiary. The reason to use trust is I need to get a commercial loan and trust can distribute the income to the company to hold for as long as I like and then the company can pay dividends to the lower incomer earner to minimize the tax.

I will be able to build 5 units on this site and might have to presale 1 to 2 units to get commercial construction loan. I understand I will have to pay GST and income tax for those 1 or 2 units without 50% CGT concession for those pre-sale units because I will not have hold them for more than 1 year.

Now the question is about the rest of the units from my development I am going to keep. How do I need to setup the business structure so that the trust will still get 50% CGT concession if I decide to sell them down the track after holding them for at least one year?

I have a full time job in IT industry, not a so-called "developer". The difficulty from what I can see is how to convince ATO that the purpose of the development is for long term investment rather than short term profit targeting although I will have to presale 1 to 2 units to get the loan.
 
If you distribute to a company it loses the 50% discounting anyway.

It also sounds like you're thinking of distributing to the trustee company, which may not be a good idea (if the trustee retains any liability for the development, for example).
 
Sounds like income to me not capital so capital gains tax wont apply

profit from an isolated transaction tr 92/3


http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR923/NAT/ATO/00001

Distributing to a bucket company will need to consider division 7a if you have an unpaid present entitlement

will need to consider trading stock provisions , gst and absorption costing

then consider s 70-110 under the trading stock provisions on the units expected to be retained for investment purposes.

might want to consider two dts with a deed of partition with one dt holding the main residence (assuming in vic where no land tax on main residence in a dt) and other assets to be sold in the other dt. Better asset protection all round.

need some professional advice on this one
 
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Why not get some specialised advice. Both legal and tax.

It might be worthwhile setting up 2 trusts which could buy as tenants in common in proportion to the sale v keep. Deed of partition too. May also be good for asset protection now and later.

Consider also fixed unit trusts.
 
Thanks guys. That is exactly like what I was told by a solicitor I know. He recommends me to setup two entities, one is the investing entity that holds and one is the developing entity that sells.

If I decide to sett up 2 trusts which could buy as tenants in common in proportion to the sale v keep with a Deed of partition, who can help me setup the Deed of partition, my accountant or my solicitor? I have got a trust setup so doesn't bother me to have another one.

When I use two trusts as tenants in common, does the name those two trusts have to be on the contract for purchasing the land? Could you please give me an example how the name should look like if first trust is called "Smith's Family Trust" and second one is called "Greg Family Trust" and their trustee is a PTY called "ABC Investment PTY"?

Thanks again for your advices.
 
Thanks guys. That is exactly like what I was told by a solicitor I know. He recommends me to setup two entities, one is the investing entity that holds and one is the developing entity that sells.

If I decide to sett up 2 trusts which could buy as tenants in common in proportion to the sale v keep with a Deed of partition, who can help me setup the Deed of partition, my accountant or my solicitor? I have got a trust setup so doesn't bother me to have another one.

When I use two trusts as tenants in common, does the name those two trusts have to be on the contract for purchasing the land? Could you please give me an example how the name should look like if first trust is called "Smith's Family Trust" and second one is called "Greg Family Trust" and their trustee is a PTY called "ABC Investment PTY"?

Thanks again for your advices.

I was talking about 2 ownership entities. You should separately consider a development entity.

A solicitor needs to prepare deeds.

Contracts would be entered into in the names of the trustee (s)

Consider the structure of your existing trust too.
 
Hi Terry,

I would like to get the structure setup correctly before I go into the contract. Could you please PM the fee you will charge for face to face advices and setup of the deed? Where is your office located?
 
Hi Terry,

I would like to get the structure setup correctly before I go into the contract. Could you please PM the fee you will charge for face to face advices and setup of the deed? Where is your office located?

Hi Anson,

There is no such thing as a 'correct' structure. There are many different ways of structuring things, some are better than others (in some aspects). You need to seek advice - from a lawyer and tax adviser too - and then make a decision based on what you plan to do in the future and weighing up what is more important v less important.

I charge a fee of $550 to meet and then another fee to set up any deeds or agreements needed etc. I know trusts, asset protection and estate planning aspects with a bit of tax. For something like this you will need someone more knowledgeable than me to advise on the tax aspects - as there are many and they are complex.

My office is in Macquarie Street, Sydney. I am in Japan now, but back in Sydney on Wednesday.
 
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