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Trust questions

Discussion in 'Accounting, Tax & Legal' started by taniamoohin, 17th Jul, 2008.

  1. taniamoohin

    taniamoohin New Member

    Joined:
    17th Jul, 2008
    Posts:
    1
    Location:
    Qld
    I have a couple of questions re trusts:

    A friend has a high debt load on his private property ($600K) - how does the ATO view the trust purchasing the residence and the beneficiaries renting back the property. The friend operates a business through a company - can the company lease the property on his behalf or will FBT apply?

    Also, another friend has 2 business, both sole traders which he wants to transfer to trusts. If the trust purchases the businesses at book value, is that the most effective transfer (so that the sole trader has no CGT)?
     
  2. TryHard

    TryHard Well-Known Member

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    Fairly critically I would guess :p Maybe they could argue by paying market rent and having some valid reason for having sold to the trust the Trust should be allowed deductions (assuming its a HDT if this is a negative geared property) but there would be the cost of Stamp Duty on sale as well as the risk of being targeted for a dodgy set up by the ATO.
     
  3. Saskatoon

    Saskatoon Well-Known Member

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    17th Oct, 2005
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    Location:
    Aldgate, SA
    To answer part of your question there is nothing unusual about the Trust leasing to a beneficiary (at market rates), but the main disadvantage is that your friend will lose the CGT exemption for their PPOR. There may be no financial advantage; as Tryhard says there is also the cost of transferring ownership to the Trust. If the Trust sells the property in the future there will be at least 50% CGT to pay (if there is any capital gain!).
    A benefit MAY be that there could be asset protection if your friend's assets are likely to be at risk from creditors.
     
  4. Redwing

    Redwing Well-Known Member

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    Location:
    PERTH..WA
    Wouldn't it be seen as being done for the tax advantage only..what other benefit?

    If it was a seperate property bought by the trust, maybe a better chance, but sell a PPoR to your own Trust, just so you can rent it back again to live there, when you were already there in the first place :confused:

    I would seek wiser counsel than me though.......
     
  5. NickM

    NickM Co-founder Staff Member

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    Location:
    Sydney
    Pt IVA - what is the intention ?
    Market rate rent helps - make sure a lease is in place + Real est valuation
    Land tax costs could also kill the deal.
    NickM
     
  6. Rob G.

    Rob G. Well-Known Member

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    Location:
    Melbourne, VIC
    CGT is based on market value in most cases.

    Cheers,

    Rob
     
  7. GavinC

    GavinC Active Member

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    11th Apr, 2007
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    Location:
    London
    Your friend may be able to take advantage of the CGT small business concessions, and defer their CGT liability. Advice should be sought for this though.