Reducing land tax with trust structure

Hi,

Has anybody looked into / used a Company to hold real property, with shares in that Company held by a Trust (ie either an individual trustee or Corporate Trustee)?

I.e. rather than buying in a trust directly, putting in the company under the trust - and having the company buy the property.

It seems that the plus side of doing this is that you can still stream income (albeit with franking credits) according to the trust deed, but you not have to pay the trust land tax surcharge?

Is this correct?

I do know that you would lose the CGT discount when it comes time to sell, but if you are never planning on selling cant see the issue and only upside.

Have I missed something? Thoughts?
 
Yes, have looked into this and have been told an accountant can organise a 'Shelf' Company to purchase a property in or transfer a property to (think you then have to pay stamp duty if you transfer from your name to company name though). Apparantly a 'Shelf' Company is a generic company and avoids you having to actually set up a company?? Please correct me if wrong??

Doing this to avoid land tax is great if you have an investment property with high land value but you have to weigh up the land tax saved compared to the ongoing costs of a company.

Hope this helps :)
 
And also consider companies don't get the CGT discount, so you will be paying more CGT (if you used a trust you would pay a max of 24%, though probably much less).
 
Yes, have looked into this and have been told an accountant can organise a 'Shelf' Company to purchase a property in or transfer a property to (think you then have to pay stamp duty if you transfer from your name to company name though). Apparantly a 'Shelf' Company is a generic company and avoids you having to actually set up a company?? Please correct me if wrong??

A shelf company is just a company that's already set up. Accountants usually have a few companies with no activity they've already set up ready to go so they can be transferred to clients who need companies immediately. It's not such a big deal these days since you can get new companies set up quickly.

Doing this to avoid land tax is great if you have an investment property with high land value but you have to weigh up the land tax saved compared to the ongoing costs of a company.

There are costs other than just the company fees. Companies don't get the 50% CG discount when they sell, and negatively gearing in a company means losses are kept in the company.
Alex
 
Thanks Alex. Do you know if you can carry those losses forward for a time when the company has an income (the IP becomes substantially positively geared)?
 
Thanks Alex. Do you know if you can carry those losses forward for a time when the company has an income (the IP becomes substantially positively geared)?

Yes, losses can be carried forward in a company, but how long would it take for an IP to become positive (including depreciation, remember)? Also, if you need it to be tax positive, you can't keep refinancing it.
Alex
 
Generally the loss of the 50% CGT discount is enough to deter most investors from using a company as an investment vehicle.

If the property was commercial property that you use in your business then some changes to the Small Business CGT Concessions may help reduce the potential gain. BUT, some of those concessions can actually only be effective to the shareholders by actually liquidating the company - that's OK if the only asset in the company was the investment property (that's been sold), but not so great if the company holds other assets.
 
If the property is located in NSW, isn't it just easier to use a fixed unit trust like the MSG Land Tax Unit Trust.

These trusts recieve the Land tax threshold of I think $376,000 which means a maximum savings of $6,016 of land tax every year.

From memory, the trustee and the beneficiaries all have to be individuals.

What im not sure about is if one of these trust can be used for every property held, thereby avoiding land tax forever.
 
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