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Land tax: PPOR exemption for PPOR in Hybrid Discretionary Trust

Discussion in 'Accounting & Tax' started by DavidMc, 12th Jul, 2016.

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  1. DavidMc

    DavidMc Member

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    Hi everyone!

    Long time, no see!

    I have my PPOR in a Hybrid Discretionary Trust in Victoria. The SRO are currently charging me land tax on it at the 'SUR' surcharge rate for trusts.

    Is it possible (and wise) for me to nominate it as my PPOR (Principal place of residence exempt from Land Tax)?


    David.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it could be possible depending on the circumstances.
     
  3. DavidMc

    DavidMc Member

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    Thanks Terry. What would be the best way to find more information?

    As far as I can tell I should be able to, but am unsure if it will draw unwanted attention to my perfectly legal but frowned upon setup.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Have a read of the land tax act vic 2005.

    What sort of unwanted attention are you worried about?
     
  5. DavidMc

    DavidMc Member

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    Just an audit I suppose. Everything I do is above board (if anything I am too conservative) but I couldn't be bothered with the paperwork, cost and stress
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    A HDT is more difficult to claim the PPOR land tax exemption. The land tax act doesnt specifically deal with hybrids and OSR will want further information about existing trust beneficiaries and the deed. They will look at the unitholders and the discretionary objects.

    Land tax and trusts | State Revenue Office
     
  7. DavidMc

    DavidMc Member

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    Hi all. I took a good look at the Land Tax Act 2005 for Victoria. To me, it looks like I can do the PPR nomination.


    Given a HDT has characteristics of both types of trusts mentioned above, surely it would fall under this?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Possibly yes.
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    OSR consider a range of factors. A HDT can also be used so that a predominant unitholder has no apparent right to benefit from the asset. eg a right to income only. Or income is based on a fixed right eg 6% in the form of interest. I would apply for a ruling - Provide the deed and register of unitholder/s and they may OK it. Of course thats just for land tax.

    Call them and ask. You wont be the first to ask. They may have a strict rule that considers a HDT is neither a discretionary or a unit trust scheme and so no exemption applies. My initial concern is that Section 46C doesnt seem to adopt a formula that allows the discretionary elements and the unitholder rights % to be combined. Like its one or the other. And of course they will ask about partner / spouse etc. I heard of one where they knocked it back (unit trust) as the guy had a partner (male) and he had disclosed he owned a property on a FHOG application.

    See also that the PPOR exemption applies for the tax year after application. No backdating ! Of course this PPOR issue is confined to Vic only.

    Its rare to find a PPOR exemption for a HDT as it infers that you dont own any other property. And a HDT can be a tax concern to start. The CGT main residence exemption loss in such an example is the normal reason why others dont do it.

    Let us know the outcome
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I think most Hybrid trusts would come under the definition of 'discretionary trust' which is defined under s 3 as:

    If the capital is restricted to the unit holders then it would be a unit trust scheme:

    But that is a bit vague - a discretionary trust could also fall under this definition.

    Either way a beneficiary under either trust could potentially meet the requirements of s46H as a
    nominated PPR beneficiary