CGT on selling family trust property by option $6m CG

Hi,

I know a little bit about how CGT, cost bases, how family trusts work and the basic principles of reducing tax payable.

Sorry if these questions are stupid - I guess in hindsight, I shouldn’t have avoided tax courses at uni hahaha .

Just wanted to hear some opinions on how to minimise a huge future capital gain tax bill for a property to be sold before talking to my accountant so I can have something to talk about with them. This isn’t the first rodeo for either parties but I wasn’t that interested in property until 2014 so I’m trying to educate myself more about the tax/accounting/legal side of things.

Property details

• Rural land near Badgerys Creek with dwelling (we actually live here)
• Bought for ~$2m 2015
• Will accept offer soonish of $8m sale price, consisting of 3 year put and call option starting in late 2018

Directly-related costs

• Stamp duty
• Finance fees
• Loan Interest
• Valuation/s?
• Accounting?
• Land tax
• Council, water rates
• Selling agent fees
• Soul

Structuring details

• Subject Property 100% owned by a family trust with a holdings company as trustee.
• Loan serviced by an actual company with real operations and trading, etc.
• Option includes upfront $XXX,XXX and $XXX,XXX every 6 months during the put and call.
• Majority of sale price paid post-option in standard 10% deposit + 42 days settlement.

Questions

1. Is it impossible to get the 100% CGT PPOR exemption even though we live there and can prove this?
2. Other than the 50% CGT discount and tax benefits of distributing income to X amount of beneficiaries, what other direct tax reductions are applicable here? What’re the rules for adding lots of beneficiaries?
3. Alternatively, what are some ways to reduce tax payable by the beneficiaries by either: increasing the cost base/reduce gross CG?
4. Would there be any relevance/legitimacy in this case to, for example, buy a whole bunch of inventory or increase business-related expenses/deductions?
5. Relevancy of buying more property or shares/capital loss-related things with tax benefits?
6. Is the upfront option fee and regular payments considered part of the sale related CG or is it just income for that FY?
7. What suburb should I move to and what colour Ferrari should I buy? (Optional)
8. But seriously, thanks for reading.

Cheers.

 

This is probably your best place to start reading.
Particulars;
- property is producing assessable income?
- main residence exemption is capped at two hectares/4.94 acres.

Don't actually know where to start with your technical queries.
ie I don't know, not being salty.

 

1. impossible to say based on info provided. if owned by the trustee of a discretionary trust now then impossible.
2. get some expensive and complex tax advice. land tax, stamp duty, income tax, gst
3. see my tip on reducing cgt
4. don't see how
5 don't see how
6 granting on option is a CGT event

 

The views of the recent ATO draft property views also needs to be considered + GST and a range of other matters. Important your tax adviser be very property savvy. It may even be necessary to seek a private ruling in some cases if the matter of ordinary income v capital account is not clear.
The nature of why a residence was acquired and held in a disc trust and its funding etc is one of the factors to explore. It could demonstrate intent to land bank, develop or even just resell at a future date after rezoning etc and for parties within a family unit to profit from the time of acquisition rather than be a mere realisation. Use as a residence doesnt necessarily assist this position. The ATO position paper is vague on specics but offers a caution about the practice that the profit may even be trading stock from the time of acquisition (eg Part B Examples 4, 5 and 7)

1. No. Only individuals with ownership interests can access the main residence exemption. (Subject to a 2HA limit)
2. May or may not be a CGT asset
3. GST could apply or may not (?). This would reduce tax.
Many of the other q's seem like wishful thinking and could be a scheme to obtain a tax benefit. I would seek advice based on facts and avoid fishing for great ideas as it will just lead you down a path that isnt safe.

There are specific strategies to the taxation of the probable profit and the option uncertainty. The CGT event does mean tax may be liable BUT a specific strategy to defer it exists and the ATO will not have an issue. However, if the property isnt a CGT asset it may affect cashflow etc and even become a sale by instalments akin to a earnout arrangement.