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Land tax unit trust (LTUT) and thresholds

Discussion in 'Legal Issues' started by wayne, 9th Jul, 2016.

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  1. wayne

    wayne Active Member

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    Hi, with a LTUT, and say it is structured, person A = 80% and person B = 20% of units to the beneficiaries. how is the land tax threshold proportioned.

    Will both A and B each be entitled to a threshold.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Do you mean a fixed unit trust?
    NSW

    If so A will be presumed to own 80% with B 20% of the property.


    Will both A and B each be entitled to a threshold = No
     
  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Yes, sort of true but also no.

    The trust receives a single threshold however A and B each also receive a separate personal threshold. So lets assume land with a unimproved value of $485,000 and two owners A and B each 50% beneficiaries in the fixed unit trust.

    1. Trust Assessment.
    $485K - Threshold of $482k = $3k. Tax payable is $148

    2. Secondary Assessment
    OSR consider if A or B own other land. If not then no secondary assessments occur. However lets assume that A does.

    A owns other land with a value of $500K. A is assessed on the $500K + share of trust land (50% x $485K) so assessable value is $742,500. Less threshold of $482K = $260,500. Tax payable is $4268 but with credit given for the 50% share of the trust assessment above $74Cr. Final amount due is $4,194

    The effect of this is that while the trust gets a threshold each beneficiary also gets a single threshold. Each individual gets a seperate threshold to each other but there is no double dip with the trust. One overlooked issue with this method is that sometimes the unused threshold from the trust helps the individual.
     
  4. wayne

    wayne Active Member

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    Thanks Paul,

    So converting from a discretionary trust (Property investor trust) to a fixed unit trust with provide a trust land tax threshold, but I assume income redirection and deductibles will be impacted by assigned trust units (%).

    How will a one off payment (sale of IP) effect distribution through the trust with fixed units.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you want the land tax threshold unit holders must be entitled to all income and capital of the trust.
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    If the deed provides for a fixed share of income then the unitholders may well become absolutely entitled by deed to their (fixed) share of the cap gain separate to their share of other classes of income from the trust estate. Of course when that is distributed the value of units tends to reflect that. Also most importantly is what occurs after the disposal....Some of the sale proceeds may be returned to unitholders and the trust needs to reflect redemption of original units so that a return of capital occurs too....A separate capital gains event to the income. There are strategies to avoid double taxation of the unitholders if its done correctly.

    Most important that units are redeemed or ALL the proceeds could be treated as income. This is a error some make with trusts especially where they have no tax adviser or a adviser not experienced in trusts.
     
  7. hhd88b

    hhd88b Member

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    how much is the fee to convert a discretionary trust to a LTUT,
    thank you