how to price losses in a trust?

[lizzie]

not sure if this is in the right section - but here goes.

looking at every angle (as one does), i was talking to my mortgage broker today. his wife owns a small development company and we were discussing how, once everything in the family trust was sold, hubby and i were going to do some inexpensive dual occupancies to sell and take the cg tax free - as any cg would be written off against the current trapped losses.

this process would take us around 4-5 years to clear the losses @ conservatively $50,000 profit per deal.

anyhow, he "tongue in cheek" offered to buy the trust (once everything had sold) so that his wife could write off all her cg on one large project. a win for her.

got me thinking. it is a possible idea.

if we sold the trust and cleared all our outstanding debt we would be in a much stronger position from day one - instead of having to wait 4-5 years.

we could then follow the same path of dual occupancy - buy an older, solid house on a block, subdivide and build a new inexpensive brick house - but instead of selling both for the cg write off, we'd buy them in the hdt and only sell the old house, keeping the new house for the massive depreciation against hubby's income.

that being said - how does one price the value of losses in a trust?

if priced at 50% of the losses then the purchaser would have 100% gain of what they could immediately write off - and we'd have the gain of time value of money.

but how would one price a fair value, and how would you go about selling it?

p.s. i've already sent all these questions to my accountant ...

 

[Ausprop]

i thought the ATO ruled this stuff out years ago?

 

[lizzie]

they may have - haven't heard back from the accountant ... but what you'd be selling is the trust structure - the trustee company - and hence a change in shareholders of that company. so, you'd actually be selling the shares rather than the losses.

hmmmmm ....

 

[JoannaK]

nice outside the square thinking here!

have a look at what factoring companies buy debt for....i think it's around 30% less than the value of the debt isn't it?

I don't think a trust could be sold...you'd most likely be selling the shares in the trustee company.

 

[alexlee]

I remember something about a continuity of ownership rule with this sort of thing.

In any case, if it's a family trust, trust assets will be held for the benefit of YOUR family, Lizzie. Even if you can put taxable gains into the trust, how do you plan on getting the assets out and giving it to your MB if they're not family? There are lots of problems here, I think.
Alex

 

[lizzie]

I remember something about a continuity of ownership rule with this sort of thing.

In any case, if it's a family trust, trust assets will be held for the benefit of YOUR family, Lizzie. Even if you can put taxable gains into the trust, how do you plan on getting the assets out and giving it to your MB if they're not family? There are lots of problems here, I think.
Alex

note: not selling anything to my MB ... it was just a comment he threw away at the time - but got me thinking.

it's actually a discrentionary trust. i haven't heard back from the accountant yet, so don't know any information about it's legalities or how it would work - but i have since been led to believe that as long as there is a consistancy in the trading (ie, can't change from a losses made by a butcher shop to a profit made by a car yard) then there is no problem - and if it is required to hold assets at the time of sale, then a bbq set might just do.

if this is the case (and i don't know if it is) then the shares in the trustee company would have to be bought out for a real estate orientated purpose.

it is the trustee (company) whio decides who will benefit from the net income of the trust each year - so whoever controls the trustee company (shareholders, director etc) controls who is the beneficary.

but - as i said - i am waiting for advice.

 

[alexlee]

Lizzie, does your trust deed name any specific beneficiaries?
Alex

 

[lizzie]

Lizzie, does your trust deed name any specific beneficiaries?
Alex

not sure as the copy is held at the accountants - as i said - waiting for advice from him.

apparently adding extra beneficaries can cause a resettlement, which defeats the purpose or someone buying such, but there are a lot of "ifs" depending on how the trust is intially written. depending on how the trust deed it written, the deed itself can be changed.

it is all speculation at the moment as selling might not be a viable option and we'd have to go back to plan "a" of trading out the losses via dual occupancies ... but ... back to the orginal question, on the outside "assumption" that such a transaction can be done, how would one value the sale price?

 

[Mofra]

not sure as the copy is held at the accountants - as i said - waiting for advice from him.

If your proposal is given the green light by the accountant, surely a Variation to trust deed to change the primary beneficiaries would suffice?

Would the ATO allow losses to be transferred along with the beneficiary arrangement?