Trust Problems

[Cian]

I want to purchase my 1st IP through my trust. However, I signed the land agreement with my own name (before I decided to go down the trust route), my conveyancer now tells me that the only way I can do this is by a "Declaration of Trust" which they will prepare. I will have to pay stamp duty of $5700 now and then another $5700 as the "OSR" looks upon it as double dealing as has to be dealt with accordingly.

Is this correct/advise please?


C

 

[karina]

Can you speak to the purchasor to see if they are happy to terminate the existing contract and sign a new contract in the name of the trust?

 

[Peter_Tersteeg]

Strictly speaking, I beleive your conveyancer is correct. You can't nominate a trust (or any other entity) unless you had a relationship or they were in place prior to signing the contract.

Ideally you should scrap the contract and write a new one.

 

[Cian]

Strictly speaking, I beleive your conveyancer is correct. You can't nominate a trust (or any other entity) unless you had a relationship or they were in place prior to signing the contract.

Ideally you should scrap the contract and write a new one.

The trust was in place. I just didnt intend to use it. I'll keep you updated.

 

[redwing]

The trust was in place. I just didnt intend to use it. I'll keep you updated.

Still no good, it's what's on the contract that counts "and/or nominee" no good either and you can't assign it without double stamp duty

As with most things in life you pay for your mistakes and the governments more than happy to accept the extra 'tipping dollars'

Lawyers etc will be happy to review for you, but they will want thier piece of the money action for an opinion also

Looks like your conveyencers right

Speak to the guys at the OSR, hopefully you will find them as helpful as I

 

[Terryw]

Who is the trustee?

There is no need to write the trust name on the contract, although it is common practice. And I would advise you not to take legal advice from a conveyancer. See a lawyer.

 

[Cian]

The trust is a pty ltd inwhich I am the director.

I presume you were looking down the line if I was the trustee?

 

[Terryw]

The trust is a pty ltd inwhich I am the director.

I presume you were looking down the line if I was the trustee?

Yeah, it is a bit more difficult as different names. I hear the WA OSR people are very strict about names on contracts etc. I would probably try to get the contract rescinded and then re entered into. It may also be possible to nominate your company even though your name is on the contract without the "and/or nominee" bit.

 

[Cian]

Yeah, it is a bit more difficult as different names. I hear the WA OSR people are very strict about names on contracts etc. I would probably try to get the contract rescinded and then re entered into. It may also be possible to nominate your company even though your name is on the contract without the "and/or nominee" bit.

Apreciate all of your advise.

Considering the Stamp duty is only 5k. At the end of the day its probably worth paying it if I have to. An expensive lesson though!!

 

[Clarion]

Save yourself the $5k.
You could fix this easily:
1)make sure you have a valid trust drawn up before you do anything further;
2) Write up a new contract (Offer and acceptance) on the same terms as the old one (and get everyone to sign and the agent to confirm in writing that he only wants one commission!)
3) Lodge both contracts at the OSR with a completed cancellation contract (http://www.dtf.wa.gov.au/cms/upload..._For_Exemption_For_Cancelled_Transactions.pdf
and an explanation at item 1 of the form that the transaction has not been carried into effect because it was entered into in the mistaken belief that you were acting as trustee of the XYZ trust when in fact that trust was not yet in existence.

You could formalise all this (if you wanted to) by getting a lawyer to draw up a Deed of Agreement (between you and the seller and the trustee of the trust) but of course that would cost $$$$.

So long as the OSR accepts that they are not being dudded (that is that really there is a "sub sale transaction" going on (See fact sheet on "Cancelled Transactions -http://www.dtf.wa.gov.au/cms/uploadedFiles/_State_Revenue/Duties/Cancelled_Transactions.pdf?n=442)
you shouldn't have any problems. If you do, you'd be up for stamp duties on both contracts (which you have said you are prepared to pay anyway!).
On the other hand, if this works (and it will) you will have saved $5k so you should feel free to give 10% of that to a charity of your choice...
Any problems, feel free to write me an abusive email )

 

[Clarion]

Just re read the thread and note you said "Trust already in place." (and also "that didn't intend to use it"-not sure what the means -'intended to use it?")
doesn't matter - just means that your explanation at item 1 of the form changes to words along the line that "unintentionally omitted to disclose that was acting as trustee".

Of course, it goes without saying that you need the cooperation of the Seller but if the situation is properly explained to him/her that shouldn't be a problem

 

[Cian]

Thank you for the above.

I rang the seller yesterday and they seem ok with the idea of tearing up the first contract and rewriting a second contract but they need to speak to my conveyancer first. They said they will be in touch.

I also very quickly need to turn my Disrectionary trust into a hybrid !!!!

 

[Terryw]

Why turn it into a hybrid?

This could cause a resettlement and new stamp duty on the deed (if they have it in WA) and on the transfer of all existing assets of the trust to a new trust. CGT too. So you need expert tax advice - try taxlawyer.com.au which is Brett Davies Lawyers in Perth.

 

[Cian]

I dont see why that would be the case. If they let me sign a new contract, i can put the name of the hybrid trust down. I dont see how this would make me incurr the stamp duty again? There is no exisiting investments in my current trust either. I need the hybrid to get the neg gearing benefits.

P.s This is all very new to me so at times its info overload!!

C

 

[Terryw]

If the trust has no existing property, then it may not be much of an issue.

But if you want to negative gear, why not just use your own name? A hybrid will provide little asset protection and lack tax flexibility. You will also find it much harder to find finance - so make sure you work this out before hand.

 

[Cian]

If the trust has no existing property, then it may not be much of an issue.

But if you want to negative gear, why not just use your own name? A hybrid will provide little asset protection and lack tax flexibility. You will also find it much harder to find finance - so make sure you work this out before hand.

I disagree with your take on asset protection and lack of tax flexibilty. A hybrid trust will allow for the neg gearing tax deductions and its whole purpose is asset protection. However, you may be right re finding finance. I cant say i have had experience on this front.

 

[alexlee]

I disagree with your take on asset protection and lack of tax flexibilty. A hybrid trust will allow for the neg gearing tax deductions and its whole purpose is asset protection. However, you may be right re finding finance. I cant say i have had experience on this front.

This has been discussed at length before, but re asset protection: if your trust units are valued according to the market value of the property in the trust, capital appreciation remains in your name.

 

[Terryw]

Units of a trust are property and if you go bankrupt will fall into the hands of your trustee in bankruptcy. For you to claim the interest personally the units must be owned by you personally.

You could have your deed worded so that if you become insolvent the units will be redeemed by the trustee, but this would not be very strong and it the deed was worded like that then you may not be able to claim the interest as a deduction for the purchase of the units.

Anyway, my point is to make sure you understand all the issues before you go and change things because you haven't got much time having exchanged already.

 

[Cian]

The ATO does not like Hybrid Trusts.
If you do use a Hybrid Trust and attempt to claim the interest in your personal tax return, it will be disallowed.
You will only be allowed to claim that portion of the interest that equates to the income you receive from the trust in any tax year.
If the income is greater than the interest, there is no problem.
However, since the investment is negatively geared, this will not happen for a number of years.
So there is no advantage to you in using this type of trust.

Response to an e-mail enquiry to my Accountant. Thanks guys your help has been invaluable

 

[alexlee]

Cian, what prompted you to want to use a hybrid trust without understanding of what it can or cannot do?