Land Tax on Discretionary Trust

Discussion in 'Accounting & Tax' started by Fluid36, 1st Feb, 2017.

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  1. Fluid36

    Fluid36 Well-Known Member

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    I also often wonder with trust how the trust deed is policed, no one actually sees the the trust deed, I could make endless changes to the deed without anyone knowing, I could change the trust deed to a fixed unit trust myself and upload it to the OSR website. How a trust is policed and tracked is ridiculous, no one actually has a copy of my trust apart from me.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    a trust is a private arrangement. No policing other than when disputes arise.
     
  3. Yson

    Yson Well-Known Member

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    I think u misunderstood me, I register with osr once I settled, and initially I thought a discretionary trust would enjoy land taxfree threshold, n I am wrong ( I dirt read any fine print or seek any legal advice ), and only found out later a fixed unit trust like terry said would have that thresholds, obviously I did not intend to rectify as costs would be high or may not even be possible ( need seek legal advice )
     
  4. Fluid36

    Fluid36 Well-Known Member

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    Terry, based on your question on the other thread:

    I set the trust up for asset protection and asset protection alone. I won't go into specific reasons why I need asset protection but I do.

    The trust owns one property which is being paid off via rental income. The property is positively geared at 80% LVR or would be without land tax in the equation.

    I feel land tax could push me into negative gearing territory and requires me to use my own savings to pay money into my loan account, not a scenario I was hoping for.

    The property was bought as a long term investment, a set and forget scenario and is my only investment property.

    As you can imagine as a one income family I am trying to keep costs down and do not wan't to constantly have to top up my loan account to pay for these extra costs out of my own money.

    The Land Tax situation came as a shock as we have already ascertained and I'm looking at a long term solution as I wan't to hold onto this property long term.

    Thanks
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I take it you are after the asset being protected if you become bankrupt at some point?

    If so a fixed trust would provide little to no asset protection in this regard if it is structured so that the land tax threshold can be obtained.

    This is because the units are property that can fall into the hands of creditors and the unit holders will have a right to the income and capital of the trust and this cannot be varied - if they did not have this then the land tax threshold would not apply.
     
  6. Fluid36

    Fluid36 Well-Known Member

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    So why have a unit trust then if it has no asset protection?
     
  7. Fluid36

    Fluid36 Well-Known Member

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    How do the OSR know when to assess trusts if they have no idea what kind of trust they are (special or fixed)?

    If a trust owns only one property and is under the potential threshold then how do the OSR know whether to ask for payment for land tax?

    I can't see how this could ever be picked up, the OSR never see the trust deed.
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Registration!
     
  10. Fluid36

    Fluid36 Well-Known Member

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    I am sure there is asset protection if one unit holder is bankrupted and the trust only holds one asset:

    Assets held by the Trustee are held for the benefit of all theUnit Holders. However the Unit Holders cannot secure their debt against the assets of the Unit Trust. Nonetheless, Unit Holders may encumber their Units with the consent of other Unit Holders and the Trustee.

    Similarly, the Trustee is unable to incur personal debts and/or secure those debts against the assets of the Unit Trust except in those circumstances where the debts are incurred for the benefit of or for the purposes of the Unit Trust.

    If the Unit Trust is correctly utilised, assets are effectively isolated from both the liabilities of the Unit Holders and the Trustee.

    The use of a corporate trustee further enhances asset protection as it limits the liability of the Trustee only to the extent of the assets held by the company
     
  11. Fluid36

    Fluid36 Well-Known Member

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    So if you don't register how could you ever need to pay land tax?

    It is not even clear that registering is a legal requirement.

    It was never communicated to me.

    Thanks
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Units could be encumbered, but this doesn't mean there is asset protection. The encumbering has to be genuine. s 120 of 121 of the bankrutpcy act.

    So if you can manage to convert the trust to a fixed trust with you as the sole unit holder how would your charge the units? I mean under what basis.

    See also
    Legal Tip 154: Unit Trusts and Asset Protection Legal Tip 154: Unit Trusts and Asset Protection
    (not sure if I have already linked this)
     
  13. Fluid36

    Fluid36 Well-Known Member

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    Terry, I'm surprised that you and Paul have not been spruiking MacQuarie Group Services fixed land tax trust that I have seen you both tag teaming on old somersoft and propertychat threads. Their website seems to be non operational. The guy Chris, does he still operate?
     
  14. Fluid36

    Fluid36 Well-Known Member

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    I won't be the sole unit holder, existing beneficiaries will all be unit holders
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I guess it is like paying income tax. If you don't pay it the ATO may not come after you for a while, but eventually they will.
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If there are several unit holders and one goes bankrupt the other unit holders would continue as normal with the trustee in bankruptcy owning the bankrupts units - they would then be entitled to what the unit holder was entitled to, which may be limited to a % of the income and capital of the trust after expenses.
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I have nothing to do with this company, but believe it is still in operation.
     
  18. Fluid36

    Fluid36 Well-Known Member

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    Tell me in a practical manner how this would ever be possible.

    One trust, one property.

    No possibility of showing up on a land tax clearance cert either as under threshold for that owner.

    Once again I make the point that literally thousand of owners out there would fall into thiss category.

    Most people I talk to don't even realise land tax exists.
     
  19. Fluid36

    Fluid36 Well-Known Member

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    I won't make myself a unit holder then, just the family.
     
  20. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I guess there may be a chance that the property would be sold with the OSR never realising that there was a trust relationship in connection with the property and land tax not being paid.

    Like someone renting their property out for cash and not declaring it. Many would get away with it.

    But in both cases the law is being broken and there would be penalties if caught. The OSR also conducts audits and investigations into these things.
     

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