Selling IP to trust for fun and profit

Wasn't sure whether to post this here or in property finance, hopefully I picked the right one.
I have IP1 worth approx 285k with only 35k loan remaining, and IP2 bought last year for 605k with 626k loan remaining (cross collaterised IP1 to lend 107%, no LMI). I intend to move into IP2 mid-late 2014. The properties are both in VIC.
I'm considering selling IP1 into a unit trust at some point before I move into IP2, and use proceeds to help reduce the future non-deductible debt on IP2. I lived in IP1 previously, moved out early 2008 and have not had a ppor since (rented or lived with parents), so should not be liable for CGT if i sell in the next 20 months.
Currently paying around $36k of deductible interest/year, if IP2 becomes my PPOR that will drop to only $2k deductible and $34k non-deductible.
I have an appointment to see my accountant soon, and will probably also talk to a mortgage broker too, but hoping I might be able to get some information beforehand, so I can run some numbers/spreadsheets and check the viability.

So onto questions:

Would I be tempting any tax avoidance issues by doing this? My understanding is this should be OK as long as it is sold for market value?

Ideally, I would like to borrow to buy units in the trust so that I can negative gear against my salary. How does this work in practice? Does the trust need to secure 1 loan to buy the property from me, then I secure a second loan for a similar amount to purchase units from the trust, the trust then uses these funds to pay off it's own loan? Do lenders loan to buy units in trusts at residential rates? What LVR will they lend, both in the trust or for units? Or is the usual practice to redraw equity to borrow for the units to get residential rates (and no questions asked)?

Since the properties are crossed, and there is negative equity in IP2, I imagine the bank will take a large chunk of the sale the reduce the loan on IP2, but hopefully not all of it! The loans are with CBA, do they have a policy that determines how much they would take in this circumstance? eg. reduce loan to 80% LVR? That might still give me 140k or so left over (to redraw to buy units if neccessary).

Roughly what would the costs be to sell into the trust? I have stamp duty, but should be CGT free. My current numbers are factoring a 5k fudge for other costs, discharge fees, trust setup fees etc. does this sound reasonable, or too low?

Can a trust hold it's own units? (This seems to be sensible, but you never know!) eg. If the trust has 10 units for 28k each, I can buy 5 units for 140k (and get half the trusts profit if any), and the trust keeps the other 5 units, and that profit just stays within the trust?

I think that covers my questions (for now). I'm sure there'll be some questions for me which hopefully I can pre-emptively answer with my (possibly flawed) reasonings!
Why unit trust (why not discretionary)? Unit trust seems to be the easiest setup to access negative gearing benefits, this is the main reason. Land tax also seems to be lower in unit trusts (calculated at general rates, discretionary charged at surcharge rates). Asset protection is not a major concern for me at the moment (PAYG employee). Unit trust seems very flexible, when the IP1 becomes positively geared again (in 5+ years), I could transfer/sell the units to my lower income partner, if asset protection becomes a concern I can transfer/sell them to a discretionary trust, later on in life I could sell the units to my SMSF. I believe I can do this without incurring stamp duty as long as the value of the asset does not exceed $1mil.

Rough numbers (once again might be flawed) suggest that I would recoup the stamp duty in 3 years (6k tax refund/yr), and an extra year for the additional costs. After that it's all gravy.

Apologies for the long winded rambling, any advice and suggestions much appreciated!
Okay. That's a long post!

My answers:
1) Tax issues - I take it you are doing this entire exercise to basically 'regear' IP1 to get the negative gearing benefits that you seem to have lost by paying down the loan too early? If so, beware of Part IVA (anti-avoidance provisions) of the Income Tax Act which prohibits schemes that seek to reduce tax payable. It is always prudent to get a private ruling so you get an undertaking from the ATO that they are OK with the arrangement and won't try to slug you with penalties etc. You have to demonstrate that there is more to this transaction than tax benefits - something like asset protection (not so with a unit trust), getting more funds out etc. You can't just get away with it if you sell the property for market value as that is a mandatory requirement of ANY sale of property due to the market substitution rule under the CGT provisions.

2) How does borrowing with the unit trust work - Basically how it works is the unit trust issues say 10 units. You buy all of these 10 units, and borrow money from the bank to do so. The trust then uses the money that it gained from the sale of units to buy the property from you. The trust (or more accurately, the trustee) doesn't 'own' its own units - there are laws against self-acquisition in this country. It only issues the exact amount of units that it needs to a purchaser. There are strategies of unit trusts recapitalising after 5 years to basically regear the property again after a value increase and increasing of the loan against the property but that relates to a seperate issue - and the ATO does not like these arrangements due to possible Part IVA issues.

3) How much would CBA ask to be paid back due to the cross coll? - Best case scenario they will require 80% LVR on the remaining property you have with them. However, they may require you lower the LVR further if the security is not adequate or they are not happy with your borrowing/financial position. Hard to predict really.
There are so many issues here it is difficult to know where to start. Hard to answer easily because you haven't numbered things.

Firstly, if you have a spouse you may be able to sell to the spouse at market value without having to pay stamp duty. This can achieve the same result but with less costs.

Secondly, you have to read TR 2002/18 Income tax: home loan unit trust arrangement
The ATO are concerned about these arrangements.

With land tax you have to look into this as you will probably need a fixed trust which is different to a general unit trust.

Transferring units - you have to look at the CGT and stamp duty implications of this. In Vic there may not be any stamp duty, but in NSW there still is, 0.60% of the value.

Trust owning units. The principle of a trusts is that A holds assets for B. So a trust cannot own its own units. But a trust may be able to redeem or buy back units issued and this could enable a trust to convert from a unit trust to a discretionary or a hybrid trust.

Asset Protection - watch out buying from related parties and the claw back provisions. If you were later to go bankrupt there could be issues.

Accessing Equity - plan ahead, how will you access equity from this property? Who can borrow and in what form?

Death - make sure you have a valid and up to date will as the units will be personal property. Consider succession of the role of trustee too.
Thanks for your replies so far. Terry, I'll make sure to number my questions in future :)

Thanks for clearing up my questions about the trust being able to own it's own units.

1) I will certainly consider selling to my partner to avoid stamp duty, but I am really also after the flexibility to sell the units to a discretionary trust or SMSF later on in life without incurring stamp duty. Of course I am taking a bit of a gamble that the unit transfers in this case will remain duty free, and they won't significantly drop or remove duty on property sales (although I suppose in this case the trust could just sell the property to the discretionary trust or SMSF outright). Does the ATO look any more or less kindly (with regards to deductibility) on selling to a spouse as opposed to selling to a unit trust?

2) Terry, the ATO link you provided seemed to be specific to using a unit trust to claim deductions for your primary residence. Is that the link you intended to provide? To make it clear, this property has been an IP for the last 4 or so years, and will remain so.

3) Fixed unit trust is what I had in mind. (I'll have to look into how these are different from a general unit trust).

4) Does the ATO tend to look more kindly on neutrally geared setups? Either only claiming expenses up to the amount of income from a unit trust, or on-loaning to a discretionary trust? A neutrally geared scenario would still be better than nothing!

5) So, I guess it comes down to whether a reasonable person would be convinced that the dominant purpose of selling to the trust was to afford me future flexibility with the property at the expense of paying stamp duty now so I don't have to pay it later on in life, when it would be a significantly higher expense (assuming the value of the property increases).

Thanks for the other things to watch out for too!
Good numbering there!

Yes, that was the TR I meant, just as a guide to selling to unit trusts.

Your dominant purpose doesn't appear to be tax savings as you have mentioned 'fun' in the title to your post. You would also have estate planning reasons no doubt.

Just make sure you get some specific advice before proceeding. Maybe even a private ruling.
Good numbering there!

Yes, that was the TR I meant, just as a guide to selling to unit trusts.

Your dominant purpose doesn't appear to be tax savings as you have mentioned 'fun' in the title to your post. You would also have estate planning reasons no doubt.

Just make sure you get some specific advice before proceeding. Maybe even a private ruling.

No asset protection in a unit trust.

Swapping absolute interest in property for a 100% beneficial interest in the very same property.

At the same time effectively refinancing that same asset for a tax benefit.

Doesn't sound too good, does it ?

Love to hear any correspondence with (competent) advisers or the ATO on this one.