Related Party Purchase

Im just wondering what the implications would be of purchasing a property from a related party?

Say if one DT purchases it off another DT (or even UT), lets ignore stamp duty, but there would be CGT, some legal fees buy anything else??

Also how would you justify the price paid for it? Would the commisioner need to be happy that it was done at market value or its up to you... Id imagine there would have to be some limitations....

 

Hi DaveA

One DT could buy it off another for whatever it wants!

However, Capital Gains and Stamp Duty will be calculated at market rate, whatever that means! I would be looking at the local papers, internet research and possible market appraisals by reputable local RE's to justify the value.

If the two trusts in question are part of the same group/family, is there any chance in using a mirror trust to not have to pay CGT????

 

Any chance of explaining the mirror trust a little bit more? I vaguely remember if they have the same beneficarys then transfer between them would not be subject to cgt but to stamp duty.. is this correct? However if you had a unit trust held by an individual it wouldnt be possible to have the mirror trust, but yeah something id love to learn more about..

If i was paying CGT, id love to make the purchase price as low as possible as the UT would be stremed directly to high income earner, and it would be being sold into a DT once it was positive geared.... Trying to create an alternative to a HDT however with alot more proven track record in the courts...

However thanks matt

 

But if you had to transfer to another trust at market value (or deemed) then the original DT route would be better provided units were redeemed at market value (and was required to be as part of the deed) ?

Less chance of a resettlement as well ?

This is not an area I have experience with.

Cheers,

Rob

 

Yes i just re read my post and understand this now.

Basically a sale from DT to DT may escape CGT exemption due to it being a mirrored trust Addtionally you would have the ability to distribute the CG to anyone youd like as its a DT.

However under a unit trust (units held in individual name) units sold to a DT would want to be sold as lowest valued as future capital gains could be distributed via the DT and basically to anyone....

 

It is my understanding that for interest to be deductible on borrowings to purchase units, then the trust deed must specify that units can only be redeemed at market (fair) value.

If not specified in the deed then you need to convince the ATO that this will be the case.

So either way you are caught.

Disposal to another trust is deemed at market value for CGT.

Redemption must be at market value.

ATO very happy ....

Cheers,

Rob

 

guess it comes down to what market value is....

With bank vals being concervate you would order one of these saying you want 100% finance, and then you could know off 3-3.5% of the price as its what you would have saved in agent commission, and you could even go as far as getting the average discount rate of sale in the suburb from APM or RPData and taking that off the price too. As long as you have the document sale then you would be pretty well covered id imagine. Maybe a private ruling should be obtained just to ensure...

However in saying this, if the property is an appartment and you have 2 or 3 for sale in the block at 500k, and you really couldnt justify it only be worth 420k... but i guess thats the valuers job...

 

yep,

Net assets, present value of future cash flows etc...

Even if the Trustee does not claim some deductions to try to 'devalue' the paper profit, a third party must value all potential revenue/gains.

Cheers,