Can you live in a house owned by your family trust?

can your primary place of residence be owned by your trust (myself and my spouse are the trustees).
The property is worth about 2 millions, so the land tax will be high at 30 000 per year. Is it worth having the property in the trust and legal to live there? Thanks

 

Why? If you own it yourself it is cgt and land tax exempt.

 

Thanks, our accountant recommended this. We are not sure if it is a sound advice.

 

Thanks

 

Why? Are you in a job exposed to litigation where personal assets are at risk?

 

If it is for asset protection then there are other ways to protect properties that are registered in your own name.

 

We both are doctors. We have our medical indemnity insurance which should be sufficient

 

Only possible if the deed permits otherwise a breach of trust.

It can be possible and the interest can be deductible too. Seek legal advice

 

Thank you

 

You might lose the land tax exemption, FHOG and potentially pay more stamp duty.

Do a financial model to determine the net cost of ownership between two options.

 

He is also a lawyer ?? I would see a solicitor.

While loss of the CGT exemption applies there is a different basis for calculation of the CGT gain. All ownership costs will add to the costbase eg land tax, interest, rates, maintenance, insurance etc. Other issue with a trust is surcharge land tax on top of base land tax (no threshold) if land is in NSW. That can get expensive....eg Land worth $600,000 means a annual land tax bill of approx $10K. Then assume growth of say 5% over long term that means potential CGT of $350K in ten years.

How would the trust generate income to pay the outgoings for its property ? Your servicing of the trust expenses could trigger a broader issue. Its one for a solicitor to explain.

It could be cheaper to be well insured and hold asset in names too.
Other strategies could also be used and good trust lawyers will discuss this - depends how its financed but there are other types of trusts that can escape the CGT and land tax burden. Have you considered that someone else owns your home that you pay them to buy ?

Solicitors will also address your other risks - Often overlooked but if your parents have wealth its also important NOT to inherit on their deaths. Or from each other !!

If one is a high risk specialist (eg Obs, Gyn etc) and other a GP the weight of risk could mean buying in the less risky persons name too.

A company hasnt been considered ? Company owned by a trust.

 

We look after a lot of high earning surgeons. Often they will still own their own houses in their own name. They also often own some investment properties in their own name as their need to access negative gearing outweighs the benefit of a different structure. A well structured portfolio can still have serious asset protection when you hold things in your own name, you just need to ensure that the equity that has been contributed is secured.

 

So the important thing to ask isnt 'can i do this' but 'why am i doing this' and 'what alternatives are there'.

 

I have a client who lives in a trust owned property. He rents it fully furnished from the trust and the trust claims expenses - private ruling in place. a land tax exemption is available in VIC if beneficiary living in trust property - with conditions. Any loss generated is offset by other business income.

Also the main residence CGT exemption is lost on this property, but could potentially be claimed on another property using the 6 year rule if it was previously the main residence.

 

The Janmoor case poses a concern for disc trusts that seek to charge rent to family etc. The Janmoor position predates existing law. and what appears permissive in ruling IT 2167 needs a note of caution that Para 29 says

Income from other sources is channelled into the trust to absorb the losses arising from the rental of the residence to the parents". Thats a Part IVA issue. TR 2002/18 is also a concern for unit trusts.

I would be very careful about trying to apply the discretionary trust position as Part IVA can also be held to apply such as when the trustee seeks to offset tax losses from private use of a residence through a scheme. Medical persons seeking significant asset protection may well be outside the ambit of Part IVA where the trust confines its operations to solely that of owning the home used by family beneficiaries who pay a commercial rent. And the Vic land tax position for some trusts is a carve out that isnt available in other states

I believe the instance Terry refers to has a private ruling which would be recommended. A BPR prior to establishing the arrangement can be problematic and poses a risk later.

 

Yes there was a private ruling