Just a thought that popped into my head while I was sitting in the sun yesterday. Is it possible to progressively sell a share of your property to your trust thereby reducing the CGT and stamp duty payable in a year. That is, if a person was to sell the trust for example a 20% share of the property each year for 5 years, the stamp duty would be less in total as it is calculated on the amount sold at the time of transfer and the CGT may be less as your total income may keep you in a lower tax threshold. Also, if this was combined with transfering the property to a spouse on a lower income for natural love and affection prior to implementing the above strategy, the CGT could be even less. What are the holes in this?
Transferring Assets
- Thread starter dionysus888
- Start date
Hi Dionysus888
I'm no expert, but from the finance books I've read I don't think you can do this with a house. Proponents of shares always use this as a disadv of property and an advantage of shares. ie, you can sell shares off in small parcels as you described, but you can't sell property off in this manner (unless you're talking about a property fund)
Cheers
John
I'm no expert, but from the finance books I've read I don't think you can do this with a house. Proponents of shares always use this as a disadv of property and an advantage of shares. ie, you can sell shares off in small parcels as you described, but you can't sell property off in this manner (unless you're talking about a property fund)
Cheers
John
Thanks for the response guys, I kinda thought it may be the case but you never know if you don't ask. What about leasing the property to the trust and then the trust sub-leases it. Would there be any advantages in doing that?
Always looking for a better way.....
Always looking for a better way.....
I was thinking of the same problem this morning,
Could you wrap the property to a discretionary trust.
I think I read somewhere that the capital gain is spread over the life of the wrap, is this correct?
I was thinking that a wrap would fix my current capital gain liability and allow it to be paid over a number of years, and any future capital gain would belong to the trust.
If it was wrapped to the trust, who would claim depreciation, me (the owner) or the buyer (trust), as its still in my name
Stamp duty would still be payable up front wouldn't it?
How would any loss be treated, could it be negative geared?
If this is possible it would seem to provide some of the advantages of a hybrid trust.
Thanks,
Kim
Could you wrap the property to a discretionary trust.
I think I read somewhere that the capital gain is spread over the life of the wrap, is this correct?
I was thinking that a wrap would fix my current capital gain liability and allow it to be paid over a number of years, and any future capital gain would belong to the trust.
If it was wrapped to the trust, who would claim depreciation, me (the owner) or the buyer (trust), as its still in my name
Stamp duty would still be payable up front wouldn't it?
How would any loss be treated, could it be negative geared?
If this is possible it would seem to provide some of the advantages of a hybrid trust.
Thanks,
Kim
I think you'll find that a CGT event is triggered as soon as you sell (including wrap) to a trust. Having spoken to the wrappers here, they tend to avoid getting their name on the deed - find a buyer, find a seller, arrange finance and act as intermediary, profit from the cashflow. No capital gain, just income (immediately taxable I presume).
But keep thinking guys. I like the idea of leasing to a trust (at least in principle, need to see if it's worth it and whether it would stand up or be considered a sham transaction).
I've gotta say, this (for mine) really is the fun forum.
But keep thinking guys. I like the idea of leasing to a trust (at least in principle, need to see if it's worth it and whether it would stand up or be considered a sham transaction).
I've gotta say, this (for mine) really is the fun forum.
Hi Dale,
Just picked this out of a tax book and was wondering what it was saying in layman's terms.
"CGT event E1 - Creating a trust over a CGT asset.
CGT event E1 happens if a taxpayer creates a trust over a CGT asset by declaration or settlement (ITAA97 sec 104-55). However, CGT event E1 does not happen if the trust is not a unit trust and the taxpayer is the sole beneficiary absolutely intitled to the CGT asset as against the trustee (ignoring any legal disability), eg where a bare trust is created. CGT event E1 also does not happen if the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same.
CGT event E2 - Transferring a CGT asset to a trust.
CGT event E2 happens if a taxpayer transfers a CGT asset to an existing trust (ITAA97 sec 104-60). However, CGT event E2 does not happen if the trust is not a unit trust and the taxpayer is the sole beneficiary absolutely intitled to the asset as against the trustee (ignoring any legal disability), eg where the trust aquiring the asset is a bare trust. CGT event E2 also does not happen if the taxpayer transferred the asset from another trust, and the beneficiaries and terms of both trusts are the same."
Dale, am I reading this right that there are cases where a CGT event is not triggered by either creating a trust over an asset or tranferring an asset into an existing trust? Is it so for certain trusts and not others? If I want to create a trust with me as the sole beneficiary, and transfer my current properties into it do I pay CGT on the transfer? I'm reading, no. Would appreciate some help on this one. Also, why is a unit trust being singled out here? What is a bare trust? Are discretionary, family, and hybrid trusts all examples of unit trusts?
Regards, Mike
Just picked this out of a tax book and was wondering what it was saying in layman's terms.
"CGT event E1 - Creating a trust over a CGT asset.
CGT event E1 happens if a taxpayer creates a trust over a CGT asset by declaration or settlement (ITAA97 sec 104-55). However, CGT event E1 does not happen if the trust is not a unit trust and the taxpayer is the sole beneficiary absolutely intitled to the CGT asset as against the trustee (ignoring any legal disability), eg where a bare trust is created. CGT event E1 also does not happen if the trust is created by transferring the asset from another trust, and the beneficiaries and terms of both trusts are the same.
CGT event E2 - Transferring a CGT asset to a trust.
CGT event E2 happens if a taxpayer transfers a CGT asset to an existing trust (ITAA97 sec 104-60). However, CGT event E2 does not happen if the trust is not a unit trust and the taxpayer is the sole beneficiary absolutely intitled to the asset as against the trustee (ignoring any legal disability), eg where the trust aquiring the asset is a bare trust. CGT event E2 also does not happen if the taxpayer transferred the asset from another trust, and the beneficiaries and terms of both trusts are the same."
Dale, am I reading this right that there are cases where a CGT event is not triggered by either creating a trust over an asset or tranferring an asset into an existing trust? Is it so for certain trusts and not others? If I want to create a trust with me as the sole beneficiary, and transfer my current properties into it do I pay CGT on the transfer? I'm reading, no. Would appreciate some help on this one. Also, why is a unit trust being singled out here? What is a bare trust? Are discretionary, family, and hybrid trusts all examples of unit trusts?
Regards, Mike
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Hi Mike!
>Just picked this out of a tax book and was wondering what it >was saying in layman's terms.
You really need to get out more, Mike!!!
>"CGT event E1 - Creating a trust over a CGT asset.[/b]
>CGT event E1 happens if a taxpayer creates a trust over a CGT >asset by declaration or settlement (ITAA97 sec 104-55). >However, CGT event E1 does not happen if the trust is not a >unit trust and the taxpayer is the sole beneficiary absolutely >intitled to the CGT asset as against the trustee (ignoring any >legal disability), eg where a bare trust is created. CGT event E1 >also does not happen if the trust is created by transferring the >asset from another trust, and the beneficiaries and terms of >both trusts are the same.
>CGT event E2 - Transferring a CGT asset to a trust.
>CGT event E2 happens if a taxpayer transfers a CGT asset to an >existing trust (ITAA97 sec 104-60). However, CGT event E2 does >not happen if the trust is not a unit trust and the taxpayer is >the sole beneficiary absolutely intitled to the asset as against >the trustee (ignoring any legal disability), eg where the trust >aquiring the asset is a bare trust. CGT event E2 also does not >happen if the taxpayer transferred the asset from another trust, >and the beneficiaries and terms of both trusts are the same.
>Dale, am I reading this right that there are cases where a CGT >event is not triggered by either creating a trust over an asset or >tranferring an asset into an existing trust? Is it so for certain >trusts and not others? If I want to create a trust with me as the >sole beneficiary, and transfer my current properties into it do I >pay CGT on the transfer? I'm reading, no. Would appreciate >some help on this one. Also, why is a unit trust being singled >out here? What is a bare trust? Are discretionary, family, and >hybrid trusts all examples of unit trusts?
It certainly sounds easy, doesn't it?
However, the kind of trust that is referred to is an antiquated trust where there is only one beneficiary. This negates the flexibility benefits of the trust and so I wonder of the advantages of doing such a thing except for asset protection.
Discretionary trusts and family trusts are one and the same animal.
A unit trust is similar to a company except it is a trust.
A hybrid trust is a cross between the family trust and the unit trust.
A bare trust is where one person holds assets on behaf of another. The best example of this is where a mother might open a bank account on behalf of her child. It is the childs money, and yet the name on the account is the mum's.
Does this make sense?
Dale
>Just picked this out of a tax book and was wondering what it >was saying in layman's terms.
You really need to get out more, Mike!!!
>"CGT event E1 - Creating a trust over a CGT asset.[/b]
>CGT event E1 happens if a taxpayer creates a trust over a CGT >asset by declaration or settlement (ITAA97 sec 104-55). >However, CGT event E1 does not happen if the trust is not a >unit trust and the taxpayer is the sole beneficiary absolutely >intitled to the CGT asset as against the trustee (ignoring any >legal disability), eg where a bare trust is created. CGT event E1 >also does not happen if the trust is created by transferring the >asset from another trust, and the beneficiaries and terms of >both trusts are the same.
>CGT event E2 - Transferring a CGT asset to a trust.
>CGT event E2 happens if a taxpayer transfers a CGT asset to an >existing trust (ITAA97 sec 104-60). However, CGT event E2 does >not happen if the trust is not a unit trust and the taxpayer is >the sole beneficiary absolutely intitled to the asset as against >the trustee (ignoring any legal disability), eg where the trust >aquiring the asset is a bare trust. CGT event E2 also does not >happen if the taxpayer transferred the asset from another trust, >and the beneficiaries and terms of both trusts are the same.
>Dale, am I reading this right that there are cases where a CGT >event is not triggered by either creating a trust over an asset or >tranferring an asset into an existing trust? Is it so for certain >trusts and not others? If I want to create a trust with me as the >sole beneficiary, and transfer my current properties into it do I >pay CGT on the transfer? I'm reading, no. Would appreciate >some help on this one. Also, why is a unit trust being singled >out here? What is a bare trust? Are discretionary, family, and >hybrid trusts all examples of unit trusts?
It certainly sounds easy, doesn't it?
However, the kind of trust that is referred to is an antiquated trust where there is only one beneficiary. This negates the flexibility benefits of the trust and so I wonder of the advantages of doing such a thing except for asset protection.
Discretionary trusts and family trusts are one and the same animal.
A unit trust is similar to a company except it is a trust.
A hybrid trust is a cross between the family trust and the unit trust.
A bare trust is where one person holds assets on behaf of another. The best example of this is where a mother might open a bank account on behalf of her child. It is the childs money, and yet the name on the account is the mum's.
Does this make sense?
Dale
Hi Dale,
Yes, it makes sense, however, the way the rules are worded, ie, "CGT event E1 does not happen if the trust is not a unit trust and the taxpayer is the sole beneficiary..." I interpret as follows: A sole beneficiary does not trigger CGT event E1 or E2 with any trust except a unit trust. Dale, if a discretionay trust, family trust, no-frills trust are not unit trusts then a sole beneficiary should be able to set up any one of these and transfer existing assets into it without incurring CGT. That's how I read it. You seem to think the rules only apply to what you term as "antiquated" trusts. Do you have further information that goes beyond and clarifies the rules in my previous post?
Considering for a moment that what you say is the case, we rule out discretionary and family trusts for sole beneficiaries. What is wrong with having a no-frills trust for asset protection? I'm trying to determine whether a no-frills trust might suit people who want to be the sole beneficiary and want to protect their current portfolio by creating a trust over their properties. If asset protection is the number one reason for setting up a trust and I can transfer my properties into it without incurring CGT what's wrong with that?
If I set up a discretionary trust, are you saying I would pay CGT to transfer existing assets into it? Okay, what extra features in a discretionary trust would apply to a sole beneficiary to warrant paying CGT for the transfer? I hope you understand the point I'm trying to clarify. As a sole beneficiary, if there is a way to avoid CGT, that must be a serious option. Up to now, my understanding was that everybody who created any trust over existing assets would pay CGT. Now I read there are exceptions.
Regards, Mike
Yes, it makes sense, however, the way the rules are worded, ie, "CGT event E1 does not happen if the trust is not a unit trust and the taxpayer is the sole beneficiary..." I interpret as follows: A sole beneficiary does not trigger CGT event E1 or E2 with any trust except a unit trust. Dale, if a discretionay trust, family trust, no-frills trust are not unit trusts then a sole beneficiary should be able to set up any one of these and transfer existing assets into it without incurring CGT. That's how I read it. You seem to think the rules only apply to what you term as "antiquated" trusts. Do you have further information that goes beyond and clarifies the rules in my previous post?
Considering for a moment that what you say is the case, we rule out discretionary and family trusts for sole beneficiaries. What is wrong with having a no-frills trust for asset protection? I'm trying to determine whether a no-frills trust might suit people who want to be the sole beneficiary and want to protect their current portfolio by creating a trust over their properties. If asset protection is the number one reason for setting up a trust and I can transfer my properties into it without incurring CGT what's wrong with that?
If I set up a discretionary trust, are you saying I would pay CGT to transfer existing assets into it? Okay, what extra features in a discretionary trust would apply to a sole beneficiary to warrant paying CGT for the transfer? I hope you understand the point I'm trying to clarify. As a sole beneficiary, if there is a way to avoid CGT, that must be a serious option. Up to now, my understanding was that everybody who created any trust over existing assets would pay CGT. Now I read there are exceptions.
Regards, Mike
Thanks, Terry. I think you're saying that I can't set up a discretionary trust with myself as trustee and sole beneficiary. Okay, so a discretionary trust is not an option for sole beneficiaries. So it's no-frills or nothing. I don't mind someone else managing the trust as long as I have ultimate say as how to manage the trust's assets and income. I assume I would still be able to purchase properties on behalf of the trust or have I got it wrong?
Mike
Mike
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Hi Mike,
>Yes, it makes sense, however, the way the rules are worded, >ie, "CGT event E1 does not happen if the trust is not a unit trust >and the taxpayer is the sole beneficiary..." I interpret as >follows: A sole beneficiary does not trigger CGT event E1 or E2 >with any trust except a unit trust. Dale, if a discretionay trust, >family trust, no-frills trust are not unit trusts then a sole >beneficiary should be able to set up any one of these and >transfer existing assets into it without incurring CGT. That's how >I read it. You seem to think the rules only apply to what you >term as "antiquated" trusts. Do you have further information >that goes beyond and clarifies the rules in my previous post?
OK, under normal circumstances if you sell, dispose or transfer an asset to someone else, you have triggered a CGT event. In this instance, there is an exemption that allows for you to transfer an asset to yourself, but, held within a trust created specifically for you and no-one else.
For simplicity reasons, there are 3 types of trust.
1. A unit trust where ownership is in accordance with the units in the trust.
2. A discretionary trust where the ownership is on behalf of the beneficiaries of that trust.
3. A bare trust where someone is merely holding an asset for someone else.
There are others, but, for the sake of simplicity I have ignored them here.
The antiquated trust that I mentioned was one where a trust was created solely for the benefit of one person and not everyone related to it. It was more of a "formal" bare trust and they are rarely ever used these days because of the lack of flexibility.
In essence, this one person trust is the type referred to within the law. So, yes, it is possible to transfer assets that you own to your own trust. However, the only advantage to this is the asset protection benefits and not the tax benefits and hence I would wonder about the advantages given the costs involved.
>Considering for a moment that what you say is the case, we >rule out discretionary and family trusts for sole beneficiaries. >What is wrong with having a no-frills trust for asset protection? >I'm trying to determine whether a no-frills trust might suit >people who want to be the sole beneficiary and want to protect >their current portfolio by creating a trust over their properties. If >asset protection is the number one reason for setting up a trust >and I can transfer my properties into it without incurring CGT >what's wrong with that?
There is nothing wrong with this at all, Mike. However, as I mentioned above the costs of stamp duty (maybe exempt as well, depending upon which state or territory is involved, I honestly don't know) establishments costs, and on-going costs might make this a costly way of protecting your assets.
>If I set up a discretionary trust, are you saying I would pay CGT >to transfer existing assets into it? Okay, what extra features in >a discretionary trust would apply to a sole beneficiary to >warrant paying CGT for the transfer? I hope you understand the >point I'm trying to clarify. As a sole beneficiary, if there is a way >to avoid CGT, that must be a serious option. Up to now, my >understanding was that everybody who created any trust over >existing assets would pay CGT. Now I read there are exceptions.
Yes, that is right. The two major advantages would be the ability to claim extra tax deductions, and, the ability to distribute income to non tax paying family members and low tax paying family members before you are taxed on it.
Consider for a moment that it is 20 years from now and you have bought another 10 IP's, all of them positively geared and producing great cashflow in addition to the existing IP's that are producing positive cash flow . . . do you really want that money taxed at the highest rate of tax before you get to it? Or, would you prefer to be able to pay a tax rate of say 2% to 5% on that income?
yes, it can be that good!
No doubt, we;ll talk more . . .
Have fun
Dale
>Yes, it makes sense, however, the way the rules are worded, >ie, "CGT event E1 does not happen if the trust is not a unit trust >and the taxpayer is the sole beneficiary..." I interpret as >follows: A sole beneficiary does not trigger CGT event E1 or E2 >with any trust except a unit trust. Dale, if a discretionay trust, >family trust, no-frills trust are not unit trusts then a sole >beneficiary should be able to set up any one of these and >transfer existing assets into it without incurring CGT. That's how >I read it. You seem to think the rules only apply to what you >term as "antiquated" trusts. Do you have further information >that goes beyond and clarifies the rules in my previous post?
OK, under normal circumstances if you sell, dispose or transfer an asset to someone else, you have triggered a CGT event. In this instance, there is an exemption that allows for you to transfer an asset to yourself, but, held within a trust created specifically for you and no-one else.
For simplicity reasons, there are 3 types of trust.
1. A unit trust where ownership is in accordance with the units in the trust.
2. A discretionary trust where the ownership is on behalf of the beneficiaries of that trust.
3. A bare trust where someone is merely holding an asset for someone else.
There are others, but, for the sake of simplicity I have ignored them here.
The antiquated trust that I mentioned was one where a trust was created solely for the benefit of one person and not everyone related to it. It was more of a "formal" bare trust and they are rarely ever used these days because of the lack of flexibility.
In essence, this one person trust is the type referred to within the law. So, yes, it is possible to transfer assets that you own to your own trust. However, the only advantage to this is the asset protection benefits and not the tax benefits and hence I would wonder about the advantages given the costs involved.
>Considering for a moment that what you say is the case, we >rule out discretionary and family trusts for sole beneficiaries. >What is wrong with having a no-frills trust for asset protection? >I'm trying to determine whether a no-frills trust might suit >people who want to be the sole beneficiary and want to protect >their current portfolio by creating a trust over their properties. If >asset protection is the number one reason for setting up a trust >and I can transfer my properties into it without incurring CGT >what's wrong with that?
There is nothing wrong with this at all, Mike. However, as I mentioned above the costs of stamp duty (maybe exempt as well, depending upon which state or territory is involved, I honestly don't know) establishments costs, and on-going costs might make this a costly way of protecting your assets.
>If I set up a discretionary trust, are you saying I would pay CGT >to transfer existing assets into it? Okay, what extra features in >a discretionary trust would apply to a sole beneficiary to >warrant paying CGT for the transfer? I hope you understand the >point I'm trying to clarify. As a sole beneficiary, if there is a way >to avoid CGT, that must be a serious option. Up to now, my >understanding was that everybody who created any trust over >existing assets would pay CGT. Now I read there are exceptions.
Yes, that is right. The two major advantages would be the ability to claim extra tax deductions, and, the ability to distribute income to non tax paying family members and low tax paying family members before you are taxed on it.
Consider for a moment that it is 20 years from now and you have bought another 10 IP's, all of them positively geared and producing great cashflow in addition to the existing IP's that are producing positive cash flow . . . do you really want that money taxed at the highest rate of tax before you get to it? Or, would you prefer to be able to pay a tax rate of say 2% to 5% on that income?
yes, it can be that good!
No doubt, we;ll talk more . . .
Have fun
Dale
Mike,
Dale and others are the experts! However, trusts can be set up in different ways: form a trustee company; or use a listed trustee company as co-trustee.
Why would you be the sole beneficiary? If you fall off the perch who are your heirs - family, friends or charities, or will you leave your estate to the Govt?!! (I don't need an answer )
Dale has convinced me that the trust is a very powerful tool for asset protection and tax mnimisation.
Terry
Dale and others are the experts! However, trusts can be set up in different ways: form a trustee company; or use a listed trustee company as co-trustee.
Why would you be the sole beneficiary? If you fall off the perch who are your heirs - family, friends or charities, or will you leave your estate to the Govt?!! (I don't need an answer
)Dale has convinced me that the trust is a very powerful tool for asset protection and tax mnimisation.
Terry
Thanks Dale and Terry,
I think I better do some more homework on Trusts. I didn't realize tax could be so low. I suspect that works in cases where there are multiple beneficiaries but I'm single so would be the sole beneficiary until I have no need of money anymore. If I can be shown how to reduce my tax as a sole beneficiary through a Trust then I would seriously consider it. I would appreciate with any further discussions of Trusts that the sole beneficiary case be not overlooked. Ta.
Regards, Mike
PS: On reflection, Terry, perhaps you're suggesting I can have a discretionary trust if I nominate some heirs or benefactors who only receive the trust assets once I've gone to the great forum up there. If it works that way, fine. I've got no problems with that. Just gotta find some deserving souls to spend my future millions.
I think I better do some more homework on Trusts. I didn't realize tax could be so low. I suspect that works in cases where there are multiple beneficiaries but I'm single so would be the sole beneficiary until I have no need of money anymore. If I can be shown how to reduce my tax as a sole beneficiary through a Trust then I would seriously consider it. I would appreciate with any further discussions of Trusts that the sole beneficiary case be not overlooked. Ta.
Regards, Mike
PS: On reflection, Terry, perhaps you're suggesting I can have a discretionary trust if I nominate some heirs or benefactors who only receive the trust assets once I've gone to the great forum up there. If it works that way, fine. I've got no problems with that. Just gotta find some deserving souls to spend my future millions.
