to buy new property (to live in ) in a trust - or not?

[bespoke]

need some opinions.

Other half and I have just offered (and has been accepted) on a house. We are going to live in this house and are considering buying it within our trust.

Hubbie changed employers about 12 months ago and currently drives 3 hours a day (round trip) to work everyday and it is taking its toll so we have decided to move closer to his work (half way between my job and his) for about 6 years. We would then move back to our current location but not current PPOR (will build on a block we own).This job pays nearly double what he can earn near home so changing jobs isnt an option. Of course these plans could change x number of years down the track but that is what has been decided at the moment.

These are the facts:

• We have one IP property in a trust which is one of those Chan & Naylor PIT trusts
  
• We have a PPOR we are currently living in which is in our names and will be rented out probably forever.
  
• We have 3/4 acre with just a shed on that we will eventually build on when we return after 6 years in the new location. This block is in MY name only (not joint).
  
• The new house we are buying, we will live in for about 6 years and after that it will become an IP.
  
  All properties are in NSW and my finance broker will probably finance the current IP with this new property seperately from the rest.
  
  The "new" property is about 30 years old with recent upgrades.

My thinking:
The current PPOR- which is currently about 50% owned will increase in value over the next 6 years. We can get the capital gain tax free and then sell that property to the trust. I dont want to do this now as its just added expense. The money gained from this will be used to build a new house on the 3/4 acre.

As the new purchase will eventually be a IP, buy in the trust upfront to avoid having to sell to the trust later, and having to pay stamp duty twice.

Spread the dreaded land tax threashold over the trust and private owned properties.

Questions:
If we do buy this new property in a trust, can depreciation be claimed on this property, even though we are living in it? I am presuming as well that we cant claim any negative gearing for this when we live in it.

Ultimately in the end (if we never buy anything else), we will be living in a PPOR which is currently the vacant 3/4 acre block, with the current PPOR a IP owned by the trust along with the current IP and this new property.

Can anyone see any advantage in buying this new property in the trust?

What would you do?

 

[coastymike]

dont buy your ppor in a trust. if you do

1. you will lose the main residence exemption. trusts arent eligible for the exemption even if the beneficiaries live in the property.

2. you will pay land tax on the property

not a good idea.

if you want to move the asset into a trust after 6 years why not transfer after that period. the stamp duty paid on transfer would probably be similar to the land tax paid over that period but at least you will have a higher cost base on the asset going into the trust which will help when you sell it latee.

 

[devank]

If we do buy this new property in a trust, can depreciation be claimed on this property, even though we are living in it?

Can you really claim anything at all as this property is not available for rent?

 

[Peter_Tersteeg]

I have seen cases where the trust rents your property back to you. You do need to pay market rent to your trust and do everything you can to make it look like an arms length transaction. Seek advice from Chan & Naylor on this.

This will allow you to get the various investment related benefits that you're eleigible for by having an IP in a trust.

Frankly though, for most people with a PAYG income and 1-2 IPs it's rarely worth purchasing through a trust.

 

[Aaron_C]

I think people on PAYG get a little too clever with trusts etc...it's not worth it for many people. Self employed is a much different story.

 

[bespoke]

thanks guys,
I just want to clarify that we already have a PPOR. This new property if not bought in a trust will be a SECOND PPOR.

So the scenarios is:
property 1 - current PPOR owned by us in both names (and soon to be rented out)
property 2 - 3/4 acre vacant land
property 3 - IP owned by the trust and rented out
property 4 - new property - the one in question which we will live in for about 6 years.

OR put another way:
Currently

WE own- 1 PPOR property

TRUST owns 1 property

I own myself - 1 property (other halfs name is not on the title)

and then there is this new property.


If we buy in our name, we will effectively have 2 PPORs so will have to pick I suppose which we class as our PPOR - or does the tax office consider the one we live in to be the PPOR?


We did have 3 IPs in the trust but sold 2 of them 18 months ago.

We do intend buying more IPs, but our current thinking is that we are propbably better off buying in a SMSF as we are both mid 40s

 

[coastymike]

lots of issues here and best to discuss with C&N who i assume are your accountants.

 

[dan c]

Can you really claim anything at all as this property is not available for rent?

Yes you can, because you are renting it from the trust.

But generally I wouldn't recommend it, for the reasons coastymike mentioned.

 

[Peter_Tersteeg]

Again, what you want to do is possible, I have clients who have done this successfully.

Other than that, all the advice from the forum isn't going to help you, you need specific advice from your accountant in this manner. There are lot's of potential issues that I can see which may or may not be relevant. Some of my clients who've done this have used Chan & Naylor, so they are the ones in the best position to advise you.

On balance however, it's not something I'd bother with, but I expect my plans for my portfolio differ from yours.