Capital Gain Tax Exemption, Family Trust

Hi All,

I live in Brisbane Qld and I wanted to know a bit more on the exemption on Capital Gains Tax in the case of an "Elderly" (ie retiring person), whom happens to be a director of his family trust (which owns a large property). Allow me to elaborate a bit further:

In his case, the commercial property has been owned as part of a family trust for over 18 years. The director of the family trust (being one person) intends on releasing this property to the market to sell. The property is expected to sell for a significant amount more than the original purchase price.

He has conflicting advice on if Capital Gains Tax will be charged to him if he sells it. As far as we know, there is an exemption if a person is retiring and if having owned it over 15 years.....BUT the confusing issue is in relation to Family Trust set up. It is unclear to us if the Family Trust setup jeopardizes the CGT exemption. So we have come up with some scenarios (& hoping for some advice):

1) If he sells this property with the intention of distributing the money to his family members only, will he be charged CGT upon sale?? (recalling he is a director, and, the original property is in a family trust).

2) If he sells it with the intention of him purchasing more property in the future (even though he is retired and has money from selling the property in question), will he be charged CGT upon sale?? (recalling he is a director, and, the original property in question is in a family trust).

3) How is either 1) or 2) even regulated/checked by the ATO?

4) Is this a nonsense issue, and it is simply the fact that he would not be charged CGT whether the asset is in a family trust or not?


** FYI: He has other investment property elsewhere, and these are generating some income as well. However, the issue above is in regard to one of his older investment propertied, which he plans to sell now,**


Many thanks for helping with advice

John

 

he must be director of the trustee company.
If the trustee sells a trust held property there is no CGT exemption, unless the small business concessions can apply perhaps.

Complex and expensive advice will be needed.

1) It will depend on the circumstances.
2) It will depend on the circumstances.
3) It is a compliance area heavily targeted by the ATO.
4) it is a very serious issue with many thousands of dollars at risk - how much is the potential capital gain?

 

Hi Terry. thanks for that quick reply. The original purchase amount was 1million (purchased around 18 to 19 years ago). The current value is 13 million.

As i understand, he is the sole director of this trust. And has been for 18 years.

I thought, since he was retiring and was the director, he would have exemption.

This property is actually small family buiness.

 

Doesn't seem to meet small Business CGT exemptions without restructuring. the person needs to get proper advice on their circumstances, :

In addition to the capital gains tax (CGT) exemptions and rollovers available more widely, there are four concessions that allow you to disregard or defer some or all of a capital gain from an active asset used in a small business:

• 15-year exemption – If your business has continuously owned an active asset for 15 years and you're aged 55 or over and are retiring or permanently incapacitated, you won’t have an assessable capital gain when you sell the asset.
• 50% active asset reduction – You can reduce the capital gain on an active asset by 50% (in addition to the 50% CGT discount if you've owned it for 12 months or more).
• Retirement exemption – Capital gains from the sale of active assets are exempt up to a lifetime limit of $500,000. If you're under 55, the exempt amount must be paid into a complying super fund or a retirement savings account.
• Rollover – If you sell an active asset, you can defer all or part of a capital gain for two years, or longer if you acquire a replacement asset or incur expenditure on making capital improvements to an existing asset.

These concessions are available when you dispose of an active asset and any of the following apply:

• you're a small business with an aggregated annual turnover of less than $2 million
• your asset was used in a closely connected small business
• you have net assets of no more than $6 million (excluding personal use assets such as your home, to the extent that it has not been used to produce income).

There are:

• other basic eligibility conditions that you must meet to qualify for any of the concessions
• additional conditions you must meet to apply the concessions when you dispose of shares in a company or units in a trust.

You can apply as many concessions as you're entitled to until the capital gain is reduced to nil. There are rules about the order in which you apply the concessions, any current year or prior year capital losses, and the CGT discount.

In addition to the four small business CGT concessions, there is a small business restructure rollover allowing the transfer of active assets – including CGT assets – from one entity to another, on or after 1 July 2016, without incurring an income tax liability. You can access this concession if your aggregated turnover is less than $10 million.

 

Hi Jrc. Thank you for that detailed response. It is greatly appreciated.

We definitly will be seeking advice before any wheels are in motion....but we needed to ask some fundamentals first.

Obviously theres a risk to him not being informed on CGT in his circumstance. Your info above... and the options make sense... but i must confess i personally did think number 1 (ie with 15 year case and retiring), did apply (even with my limited knowledge on cgt).

But as you correctly pointed out, expert advice is certainly warranted and I will be sure to mention this to him.

Appreciate the advice!

 

Trusts don't have directors for starters. Unlikely the small business concessions will apply i think.

 

Hi Terry.

Hmmm. Are you sure? On a segway... Even I have a family trust with my wife and i as directors. We set it up with her and i as directors.

Or perhaps i have misunderstood your comment?

 

hi Terry.. rather than me guessing. I will find out his trust structure and let u know soon how it is setup

 

I am a lawyer specialising in trusts!

Only companies have directors. You are probably a director of the trustee

 

yeah... you are correct. perhaps me misunderstanding him.

But i will get back to you with how its set uo anyway... thanks again for that.

p.s my wife just pulled me up also... we are directors of our small home buisness (not the family trust), which I stated in error.

 

I will have to pull you up again. You are directors of a company that operates a business. A business is not an entity but something an entity does. It could be operated by an individual or a company or a trustee.

 

aha. that indeed makes sense. thanks for correcting me.