Income Loss offset against other incomes

Hi all,

4 years ago I bought a large site with an existing house, with the idea to develop the rear and add 2 units. I renovated the front house and prepared the survey of the land, reestablishment of the boundaries and had a pre application meeting with council.

I bought this property under my name.

Then, because of personal issues, I couldn't do anything in relation to this site.
Now, I am ready to continue with this project, but I would like to transfer the property into a discretionary trust.

After these 4 years, the value of the property is slightly lower.

As the original plan when I bought the site, it was as a business and income producer, the purchase and its profit was going to be treated as income tax and not as capital gain tax. Therefore, can i offset now that I am selling this property, the loss against my income as an architect?

Could you please clarify this for me?

This is the first development I am doing for myself, but I do work as an architect for a firm and at the same time I have independent projects using my ABN number. Can I still claim this small loss against my salary and my other income?

Thanks in advance,

Fabiana
 
I doubt it without a review of your personal circumstances and specific tax advice. Its a far too specific question.

1. It would appear the original acquisition was intended to be business income. There was a business charecter at that time. Hence trading stock rules. A trigger event may result in a deemed disposal at market value - thus a business loss. Question : is selling to refresh cost base a scheme ? (Unlikely but worth considering)
2. Non-commercial loss rules may apply. The only test you may satisfy is the $500K business real property test. "Continually used" poses a initial concern and this aspect would require some review for eligibility.
3. Have you considered stamp duty as a cost to transfer to a DT ??

A change of structure for the purpose of changing tax outcomes may actually fall foul of Part IVA (anti-avoidance) if its purpose is to obtain improved tax benefits v's in your name alone. ie : Spouse or family splitting etc. Any advice on such a change should also consider Part IVA.
 
Primary purpose of moving the property to a family trust? Asset protection since you are an accountant with an ABN?

Part IVA is an objective test of a dominant purpose.

Was there tax deductions claimed for purchases of trading stock ? Or evidence of treatment as revenue assets ?

GST input tax credits ?

Interest, rates, insurance claims ?

History of property development or other evidence ?
 
Many thanks for your answers.

Yes, I am an architect, but not an accountant. And as I said, this is the first development I am doing for myself, but I do work as an architect for a firm and at the same time I have independent projects using my ABN number

Yes, I am considering in transferring this property into a DT. I am aware that I will have a small loss because of stamp duty implications, but I prefer not to expose myself and have an asset protected entity.

I did not claim anything before, except all the related expenses as I am renting the existing house. Does this change any previous fact?

Thanks,
Fabiana
 
Transferring an existing asset to a related trust has a number of asset protection issues. You need to seek legal advice because the strenght will range from very weak to medium depending on how the transaction is structured.
 
Yes. Primary purpose is for asset protection - transfer to defeat creditors. Need to consider bankruptcy act and conveyancing acts s37A in NSW from memory.
 
Hi Terry,

The purpose of transferring the property and holding the development under the trust is to protect what I have in my personal name in the event something happens during the development.

I do not have any creditor looking after me.

The new trust is still weak?

Or, what you are saying is that in the event I am being sued during the development, there is a 4 year claw-back period where I as an individual can be sued?
 
Hi Terry,

The purpose of transferring the property and holding the development under the trust is to protect what I have in my personal name in the event something happens during the development.

I do not have any creditor looking after me.

The new trust is still weak?

Or, what you are saying is that in the event I am being sued during the development, there is a 4 year claw-back period where I as an individual can be sued?

I can't comment without knowing your situation, but there will be various personal guarantees required along the way so it will largely depend on how things are structured.
 
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