Pepper tree trust strategy .please explain?

[Muffinman]

Peppercorn trust strategy .please explain?

Could some one please explain a little more on the Peppercorn trust strategy?
I have a very limited grasp of the idea but need more clarification.

Example: Joe Blog purchases property, Joe leases to his own company under the Peppercorn rent.
Joe decides to sell property for a 200k more but Joe has now broken the Peppercorn lease and now needs to pay out the arrangement to his company.
Joe pays no capital gains as what was made is paid out to Company for break of lease.

Can some one please explain the strategy to me?

 

[JoannaK]

i have never heard of peppertree rent, but I have heard of peppercorn rent, which I believe is a low rent/nominal rent...

 

[Muffinman]

Typo sorry ,,peppercorns and pepper trees

Sorry for the confusion

 

[GZM]

Can't offer anything specific on point, Muffinman - BUT whenever I hear of schemes like this that appear to have no commercial purpose whatsoever and have been concocted by someone to avoid paying tax, I get nervous.

I'd pretend you'd never heard of it!

 

[Muffinman]

GZM yes that is why I asked.
I lady friend of mine has approx 200 properties set up like this and used the system for years now with no problem ( touch wood)
I'll just have to re-question her again and maybe use her accountant.

 

[asdf]

Can we get more info on this strategy? If you lease to your own company, does it then sub-lease it to get your rent payments? Then when you sell the property while its still under the lease, there is an early termination fee charged by the lessee which offsets any CGT payable which you personally have to pay. So you have transferred CGT liability from personal account into revenue for the company taxable at 30%. Why would you do this when after the CGT discounts for personal holdings, at most you'll be paying 0.23% tax? Unless shes running development losses in the company?

More info please...

 

[Muffinman]

asdf I'm not certain how she does it all , but I asked her about some property in QLD that she purchased for say 1.2 then 6months later re-sold for 1.9 and questioned her about the CGT.
Her response was she pay's none because of the Peppercorn Rent she has set up. She informed me all her properties in SA and other places were all set up exactly the same and it's a win win.
The property was leased to her company on a Peppercorn rent set up say for 100yrs at $1. Her company of course rented it out again at approx $800.
And due to her selling the property terminated the lease and had to pay out.
So yes possibly she is running it as a loss in company some how on all 200 + properties.
When she's up this way I'll quizz her in more detail, I never bothered to ask any more about it as I thought it might have been a fairly standard practise." wrong"


Peppercorn (legal) Rent,
http://www.reao.com.au/showthread.php?t=1717

 

[allblack]

ATO have come down heavily in the past on schemes such as this and I'm almost certain Part 4A of the income tax act would apply. These are the general anti-avoidance rules for income tax. Just because she hasn't got caught yet doesn't mean it works.

I wouldn't use her accountant if I was you.

 

[Mry]

Part IVA would nail that scheme to the wall. Its a scheme to avoid tax with no commercial explanation between related entities other than to save tax.

 

[Muffinman]

Yes I'd be interested in hearing the accountants explanation but I guess when her partners are barristers and accountants it helps.
They were wanting me to get involved with construction of aged homes due to no CGT on such projects but with friends /partners like that it's possible I'd be left holding the ball.

 

[Mry]

If they were contemplating that scheme, I'd ask for their private ruling. And for future reference, I don't know who these people are and this may be off the track, but in my experience if people are going to do funny things with tax law, they are going to do funny things elsewhere.

 

[Muffinman]

Mry you are correct , some how I've been caught up with such funny things it was not until people I recommended were burnt it hit home.
Things were corrected but it's not the right thing using hard working honest people for selfish gain.