Hi guys, First time poster. I’ve recently developed a duplex (just strata titled this month) in my “abc pty ltd atf abc family trust”. Debt circa $700k, value $1m. The plan was to sell both, but we have since moved into one (paying market rent to the trust) and the other has a great long term corporate tenant. Our priorities in finance have changed and we estentially want to rid ourselves of debt and pay everything off. This is the only property (2 townhouse units) in the trust. What tax complications will I face if I sell the 1st unit? Can I use the total proceeds to pay the debt down without tax on unit 2. The core business of the trust is property development and the units are on the books as trading stock with both currently for sale. I would like to purchase a new home in the near future in the same trust. If I need to answer more questions, please fire away
Ordinary income principles apply to both sales. GST and land tax also. Why buy a home in a trust ? A trust can never normally access the main residence exemption.
Ok, so no way of using the “profit” to pay off the debt? Being trading stock, I thought that it wasn’t classified as profit until you actually clear the debt. Same concept as buying stock in your business, or am I a tad misguided? Reason for buying in a trust, mainly protection. Both partners are company directors in a high risk industry where if one client decided not to pay, involcency would be immediate.
If you love the home get it out of the trust. Look at rentvesting? If you acted early you might have been able to sell the home to you at off the plan rates. Seems a bit late? Maybe becoming a long term renter can work if the home is in an overpriced market? As @Paul@PFI said - taxes all round and a bit ugly. Sorry.
If you claimed GST during the development process have you done a division 129 GST adjustment for the one you moved into ? Trading stock is treated as income once you dispose of the asset OR it moves from being trading stock to a fixed asset. Special rules apply re valuation methodologies. Given both are for sale may not be a major issue.
It can well be xbenx. Also if their was a life tenancy the main residence exemption may well apply. A batten strategy. Correct @Paul@PFI
Debt doesnt factor into profit. Profit repays debt. Debt doesnt impact profit expect through interest. The ATO also consider a need to repay debt as a profit making intention as its realises income. Trusts to own you home have very limited protections. In NSW there is a limited exception -perhaps can also be argued in QLD but the profit making intentions wont assist that.
Sorry can't answer your Q .but what I want to know is what stratery,development time that you made to turn 700k into 1 mill !?
