Restructuring to a Trust

[Domo]

I am new to this forum & I was wondering if someone can help me with a Trust question ????

I have a new accountant who is very focused on saving tax.
He will be detailing a new structure to my finances.

I have a property in Melbourne which I have been living in for 9 years which I want to convert to an IP. My accountant has suggested creating a Trust & selling the IP to the trust , he also told me that because I have been living in the place that there is a time period in which selling will not trigger a capital gains tax.

Does anyone know if this is correct & if not is there anything I can do to minimise capital gains tax when selling to a trust.

 

[GreatPig]

Domo,

I'm no accountant, and I'm sure you'll get a much more authoritive response than mine, but I would have thought there'd be no CGT when selling your primary residence (assuming this property has only ever been your primary residence) as it should be CGT exempt. However, once it's an IP, then a later sale would be taxable (I'd assume from the market price at the time the trust purchased the property).

And I believe the trust would have to pay stamp duty on the purchase, whatever that is in Victoria.

As I say though, I'm no accountant and this is just my understanding.

GP

 

[Glebe]

Yeah dude no CGT is payable on the sale of your home residence, regardless of whether it's to your trust or to a complete stranger.

But your trust will have to pay stamp duty on the purchase, like everyone else.

 

[Domo]

Thanks for the info , It will help me as appropriate questions when I talk to my accountant instead of just accepting what he says as gospel.

I find that you need to be on top of everything eg you need to know something about accounting to know if an accountant is doing a good job. I suppose I have a trust issue , I only trust myself to put in 110 % effort with my investment.....

Does anyone else feel the same or is it just me ?????

 

[geoffw]

It would be worth while to read up on Dale's "Trust Magic" to get a good overview on what trusts are about, and how you can benefit from them- see http://www.gatherumgoss.com/shopping.htm

 

[Domo]

What type of info does Trust Magic provide , is it just helpful to set up a Trust ???
Is there a few questions I can ask my accountant to determined if the Trust type he is suggesting will suite ?
I assume the trust will be Family or Discretionary .

 

[geoffw]

Have a look at the link- it does show what info is in the manual- it covers a lot more than just setting up the trust.

Family trust = discretionary tust.

If you were negatively gearing another sort of trust would be of use (hybrid discretionary).

For instance, there are a lot of deductions which a trust could claim which you could not. So it could well be worth the $99 cost.

 

[ren-A]

Trust Magic worth a lot more than $99

Domo,

I don't buy many $99 books sight unseen but I'm glad I did with this one. with just one strategy, or a few simple deductions (such as the computer and internet fees to access this forum), you'll quickly get your money back.

Checking what your accountant says is a smart move - can I suggest you get even smarter and buy the book?

Cheers

 

[Domo]

Domo,

I don't buy many $99 books sight unseen but I'm glad I did with this one. with just one strategy, or a few simple deductions (such as the computer and internet fees to access this forum), you'll quickly get your money back.

Checking what your accountant says is a smart move - can I suggest you get even smarter and buy the book?

Cheers

Thanks for everyone's input it's great to get recommendations from people who have experience & are willing to help.

ren-A you have talked me into it , the book sounds like a good investment as it will help me make an informed decision on the trust structure I need to make.
If i don't take control of my future who will !!!!!!!

 

[MasterInvestor]

hi Domo

Sounds like your accountant may know what he is talking about. There should be no CGT on the sale of your home to the trust, but stamp duty will be payable.

The main advantage with doing this is increasing your loan on your IP and moving the funds to your new home, thus decreasing your non deductible debt and increase your deductible debt - hopefully saving you thousands per year in tax!

 

[redwing]

Which book?

Is Trust Magic better than Tax Battles or both worth thier weight to a Property Investor?

Is the information updated and current?

I haven't bought either yet, however am looking at doing so, and maybe helping my accountant along..

REDWING

 

[geoffw]

Is Trust Magic better than Tax Battles or both worth thier weight to a Property Investor?

Is the information updated and current?

I haven't bought either yet, however am looking at doing so, and maybe helping my accountant along..

REDWING

"Tax Battles" covers general property investment and issues with taxes. and covers trust matters briefly. "Trust Magic" covers trusts in particular, to a great deal of depth. The Tax Battles manual was updated in May this year.

If you're quite familiar with what's in the forum about deductions available (say the difference between a repair and an improvement in your tax return) you may not need Tax Battles. But at $168 for both together, it could well be worth it for you.

 

[Imagine]

Main residence rule (exception)

Hi guys,

hopefully this ATO determination will help you out TD 1999/43.
Their may have been a more recent determination I'm not aware of!
for your case to be cgt exempt you would have had to live in this property from date of settlement for at least 3 months and had ownership of the property for more than 12 months
and then you could have done as follows;
Rented out your property, you have up to 6 years to have rented it out and been exempt from cgt. this 6 year period could have been eg rented for 4 years vacant for 2 years-you are still exempt. but if you rented for 4 years, left vacant for 2 years, then rented for another 4 years then you have it rented for 10 years and you would only then be exempt for 6 years, 2 year will attract cgt. a way around if to rent for 6 years, move tenants out, move yourself in for 3 months and then re tenant as your 6 year exemption then starts again.

hope I have been clear and helpful!

 

[Mry]

Rented out your property, you have up to 6 years to have rented it out and been exempt from cgt

...but if you acquire a new principal place of residence after you move out, the exemption is gone. You can only have one PPR at a time.

http://www.ato.gov.au/print.asp?doc=/content/29092.htm

"Under the capital gains tax rules, if you use your vacated home to produce income, you can choose to treat that home as your main residence for a period of up to six years. If you do not use the home to produce income, you can choose to treat it as your main residence for an unlimited period after you cease living in it. If you choose to do this, under the capital gains tax rules you cannot nominate any other dwelling as your main residence during your period of absence, even if you actually lived in that other dwelling."

Transfer the property into the trust before you start renting it out to avoid paying CGT on the property to make it simple. Even if you transfer it out a week after receiving rental income, you would pay tax on the profit of "profit x 7 days /3285 days (9 years) x marginal rate" so it will be likely to be small, but accountants prefer things to be as simple as possible.

However, the trust will be paying investment stamp duty on the transfer rather than the concessional amount which sucks.

 

[Sultan of Swing]

Is Trust Magic better than Tax Battles or both worth thier weight to a Property Investor?

Is the information updated and current?

I haven't bought either yet, however am looking at doing so, and maybe helping my accountant along..

REDWING

Hi Redwing

I ordered both books last week and they arrived on Friday. As i'm on holidays. i read Trust Magic on Friday and started Tax Battles today.

Both are VERY easy reading, meaning even i can understand them. They're written by someone (DaleGG) that has been there, done that and knows all the ins and outs. As they're related subjects, the 2 books do double up a bit which is to be expected but if you buy them both from Dale's office he's offering both for $168-00 as opposed to $99-00 each.

You mentioned weight, well, you'll certainly get that as they're both A4 size making them quite large.

The information is worth every cent.

Cheers

 

[quiggles]

Domo

Welcome. A small warning. Watch the timing of the transfer of your PPOR into the trust. Complete that before declaring (or preferably moving to) a new PPOR. It's all about CGT now and later.

 

[DaleGG]

Hi Mry

In Victoria, there is only one set of rates for stamp duty. So, we don't have that problem....we just pay LOTS regardless of whether the property is a home or an investment.

Dale

 

[saskatoon]

Hi geoffw,
another forumite (possibly 'Still at School'?) has pointed out in the past that a discretionary trust and a 'family trust' are strictly not the same. A discretionary trust can make a 'family trust' election, which changes the way in which the trust operates, I didn't follow the technicalities up! Dale?
Terry