Any potential solutions?

Discussion in 'Accounting & Tax' started by Simpsons, 10th May, 2021.

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  1. Simpsons

    Simpsons Well-Known Member

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    Homer & Marge purchased an investment property 10 years ago. Since day 1 they believed it was held via a discretionary trust with Homer & Marge as individual trustees. They have been lodging trust tax returns (via a tax agent) for 10 years with that property being under the discretionary trust. Recently they did a title search themselves and it lists them both as personal owners as tenants in common as 50/50 owners.

    From next year's tax return can they just list the property in their own personal tax returns and not list it in the trust tax return anymore, then close down (vest) the trust? Would this cause any problems?

    Is there any way they can fix their tax returns moving forward? Any possible solutions?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Trusts are not legal entities and it is prohibited to record them on title.

    No
    It will cause heaps of issues.
     
  3. Trainee

    Trainee Well-Known Member

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    What, exactly, is the problem that needs a solution here?

    if it was a corporate trustee and only the company appeared in the title, what would they be thinking?
     
  4. Simpsons

    Simpsons Well-Known Member

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    So it doesn't matter that on the title it's listed as Homer & Marge as tenants in common with percentage ownership recorded as 50% each? It's still fine for the property to be held in a discretionary trust even if the title says they hold it as tenants in common?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    That's how it should be
     
  6. thatbum

    thatbum Well-Known Member

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    This is why I firmly believe that if you don't understand how a trust works, then you shouldn't use them.
     
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  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I must admit when I first set up a trust, it held property and I didn't understand the basics either. This was before I was a lawyer. I recall a conveyancer yelling at me when she asked whose name was the property going in when I said 'the trust's'.
     
  8. Simpsons

    Simpsons Well-Known Member

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    Ok that's good to know. What about the below scenarios?

    1. Can the title shows Joint Tenants for Homer & Marge, but the property be still held in trust?

    2. Say there are 4 people as individual trustees of a trust holding a property & the title search shows all 4 names as tenants in common in equal shares. Is that all fine too?

    3. Homer & Marge as individual trustees of a trust holding a property & title search shows Homer & Marge as tenants in common with Homer with 7/10 share and Marge as 3/10 share. Is that all fine too?
     
  9. Trainee

    Trainee Well-Known Member

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    Are these real examples? If not, are you just going to create more and more fantastic scenarios until you find the problem you are looking for?

    if you are thinking of using a trust, rethink it, and ask about corporate trustees.
     
  10. thatbum

    thatbum Well-Known Member

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    Do you know what a trustee is?
     
  11. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The issue of establishing a trust with huan trustees is now evident. Its easier to appear to co-mingle personal assets ad those of a trust. A company trustee limits this as the company may own nothing other than in its capacity as a truste. Where individuals may own other property. This makes it more visible to creditors and litigants.

    Just as you have misunderstood the ownership issues I also have seen the inverse. Human trustees with a property held on trust and the owners have incorrectly included the rent in personal tax returns for years. There are little or no trust records apart from a deed. A bank account in the names of the individuals. Is there really a trust ?

    can they just list the property in their own personal tax returns and not list it in the trust tax return anymore, then close down (vest) the trust? Would this cause any problems?
    Yes. There may be a CGT event. There could be a stamp duty issue sometimes. While the legal owner wont change, a beneficial interest may.

    Trust records such as trust financials AND tax should always be prrepared each year. I have a professional approach that I will never prepare a trust tax return only. This is a legal accounting for the net assets of the trust. And the trust income and expenses. Thjis satisfies to aims - common law and tax law compliance. A trust must hold assets to be a trust. What are they ? If the trustee doesnt know then is there a trust ? These records can be relied upon if the trustees are personally sued so that trust assets may be set aside from that of personal property and assets.
     

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