Join our investing community

Sell & Buy in Trust ?Wash sale

Discussion in 'Accounting, Tax & Legal' started by goponcho, 20th May, 2019.

  1. goponcho

    goponcho Active Member

    Joined:
    4th Nov, 2017
    Posts:
    34
    Location:
    Perth
    Quick one,

    Have some VAS in personal name under my wifes name with a capital gain, but am looking at setting up a trust soon for asset protection mostly but also tax efficiency.

    If i sell out of the VAS and then buy shortly after in a trust with me as the trustee, would this count as a wash sale under part IVA?? I could alternatively buy a similar low cost index if that would be better?

    Thanks guys!!
     
    twisted strategies likes this.
  2. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    943
    Location:
    Sydney
    Part IVA could potentially apply where it is a scheme with the dominant purpose of a tax saving.
    If you are selling in one entity and another entity is purchasing there may be other dominant reasons other than tax.

    Also won't necessarily give you any extra asset protection - how is the trustee going to pay for the shares?
     
  3. goponcho

    goponcho Active Member

    Joined:
    4th Nov, 2017
    Posts:
    34
    Location:
    Perth
    Thanks Terry.
    Selling from personal name, buying in trust with me as sole trustee but going to borrow from the both of us in order to debt recycle.
    Would this not provide protection if there are only shares in the trust?
    - if wife sued, unable to access trust assets as owned by trustee?
    - if me as trustee sued for a non-trust asset related reason, trust assets not at risk either

    Thinking of alternatively leaving the parcel as is to avoid possible IVa risk, and just debt recycling with any further funds we have.
     
    twisted strategies likes this.
  4. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    943
    Location:
    Sydney
    how will the trustee get the funds to purchase the shares? - It seems you and spouse will lend it to yourself?

    Firstly you can't lend to yourself so be careful there, and secondly this loan will be your asset going forward.

    If you are sued the asset (the loan) will fall into the hands of creditors
    If your wife is sued probably at least 50% of the loan would fall into the hands of creditors.

    Seek legal advice, especially if the sums are high.
     
    twisted strategies likes this.
  5. goponcho

    goponcho Active Member

    Joined:
    4th Nov, 2017
    Posts:
    34
    Location:
    Perth
    Hi Terry a couple of questions,

    If i lend all the funds to the trust which then purchases shares, would this forfeit the dominant purpose being for asset protection in the eyes of the ATO? Would make it difficult to use a discretionary trust to debt recycle then, as the funds need to be loaned to make it tax efficient? (I understand that it will still be our asset, which introduces some risk in litigation)

    Also, is there a time limit for it not to be a wash sale? Say my wife already has some investments, can i purchase further investments in the trust, then x months later sell my wifes investments?

    Thanks very much!

    o_O
     
  6. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    943
    Location:
    Sydney
    If you lend money to a trustee which purchases assets there is still asset protection because any growth in those assets would not belong to you, but be held on trust. So if you are sued the loan still comes back to you and goes to creditors, but the equity may be safe.

    No time limit for a wash sale, but the sooner it is the more likely it might be washing.
     
    goponcho likes this.
  7. goponcho

    goponcho Active Member

    Joined:
    4th Nov, 2017
    Posts:
    34
    Location:
    Perth
    Thanks Terry - as always that clarifies everything
     
    Terryw likes this.