GST Free New Residential Premises

I was rethinking benefits of trusts and recalled a strategy that is rare and of limited application. Can be used by a developer who intends to transfer a property after development etc to a related party. Perhaps even a SMSF. (Many conditions apply)

Its rare and complex as I said and I have not explained all the issues and conditions but the basic strategy is this. On completion the control and trust units are transferred to a related party rather than the title. The title remains owned by ABC Pty Ltd as trustee. This is not a taxable supply for GST as it is a financial supply. GST would normally apply to new residential premises . So no GST on the transfer of the trust units etc. In some states depending on the property value it also may not be a dutiable transfer - land rich provisions apply in some states for higher value property transfers. Of course CGT still applies and market value is the determining issue.

Note also that the GST on the build being transferred proportionate to the total build would be unable to be claimed. However despite that sounding dire it reduces the profit for each dollar of GST that cannot be claimed and the taxpayer marginal tax rate may actual provide a greater tax benefit that claiming the GST anyway.

 

Good one Paul - And then the trustee could be changed to be that of the unit trust and the trust disolves. The units end up legally owned by the unit holder. Good for asset protection during construction and you get all the benefits of direct ownership at the end.

Do you know the tax and duty consequences of the legal and equitable interests merging? (I have never looked into it)

 

could really only do it where one property remains in the unit trust.

otherwise if you transfer the units across with property to be retained as well as trading stock you will then have cgt event e4 to deal with on the sale of the trading stock and is going to be very messy and difficul to clean it up.

 

Yes...One of the reasons why a single property should remain in the trust if that was the strategy.
Remember when trust cloning was the go...The good old days

 

agreed paul.

clients often want to save costs but sometimes by saving costs it means you cant even adopt intended strategies. so the money totally wasted.

e.g. fixed unit trust has 2 properties in it. loan on property one paid off. but loan on property two still outstanding. want to move one into super. cannot until the security and loan is gone.

two seperate unit trust and voila problem solved.

 

What about if a company owned a new build house and I sold the company instead of the house?

 

Depends what you sell and which state. The problem with a company can be pulling the profit out to do that. You would have a secondary tax problem perhaps - Land and the profits may both be company assets.

Land rich property company can be dutiable still in some states.

Value shifting

Harder to sell a private company. Buyer inherits the company tax issues.

 

Thanks Paul. Yes, I imagine lots of tax issues

 

Selling shares in a company that owns land in NSW can be exempt from stamp duty as long as the company is not classed as a landholder - owning less than $2mil of land.

 

"The provisions apply where a landholder has land holdings in NSW with an unencumbered value of $2 million or more." - Landholder Duty | Office of State Revenue

So that means if you have landvalue of $2.5mil and have a mortgage of $2mil & you transfer shares in a company or units in a unit trust, Landholder Duty won't apply as only $500k is unencumbered? Am I understanding this correctly?

 

No. The unencumbered value is $2.5mil in this case.