Legal Tip 17: The 18+ Advantages of using a UT v Personal Name

Plenty of advantages of using a UT v using an individual to own property

1. Ability to transfer part of the property without changing title. You can transfer the units.

2. The transfer of units can be done at reduced stamp duty or no stamp duty. In NSW it is currently 0.6% of the value of the units. Compare this to transferring ownership of the property which could mean stamp duty at say 4%.

3. Ability to save CGT by transferring the units in stages. ie. instead of selling all the property this year you could sell half now and half next year to reduce CGT. (this could be done in personal names but more cumbersome).

4. Ability to get a residential property into a SMSF. Normally prohibited by the SIS act, but there is an exemption for the transfer of units from a person or a DT to a related SMSF, SIS Reg 13.22C.

5. Ability to borrow indirectly for private expenses and have the interest deductible. e.g. You own units in trust, equity builds up, you sell units to a DT or spouse who borrows to buy the units. Interest deductible to the borrower. Cash used to pay down private debt. stamp duty may be payable depending on state and CGT would be payable too.

6. If the unit trust is a fixed unit trust then ability to access the land tax free thresholds in NSW and Vic, where trusts are generally penalised.

7. Ability to get separate land tax thresholds per trust in other states such as QLD and SA.

8. Ability to keep the ownership of the units secret. Ownership of the land will be the trustee and this is publicly searchable, but ownership of the units is a private arrangement and not searchable. Compare this to a company - all shareholders are recorded and their DOBs and home addresses is searchable by the public.

9. Ability to negative gear by the unit owners borrowing to acquire the units. Interest can be deductible against their personal income.

10. Ability to improve loan serviceability. say you owned a property and it had build up heaps of equity, but you couldn't access it because of a major credit default, or because you were not working. You would be stuck. But, with a unit trust you could just insert a new director to the trustee company and use their income to service.

11. Estate Planning. It may be easier to leave control of the in the trust property to someone by making sure they control the trustee company. This can be done without probate, and even bypassing probate. You can do this via shareholdings of the unit trust corporate trustee. Either have these shares owned by a different trust or pass them on to someone while you are alive.

12. Asset protection. Trust assets don't fall into the hands of trustee in bankruptcy, but units will if you personally own them. More asset protection than owning in your own name, but much less than a discretionary trust. Terms of the trust can also slow down the trustee in bankruptcy taking control and selling property.

13. Asset protection in death. Generally trust assets do not form part of your estate, so less chance of the UT assets being affected by a challenge to your will, such as Family provision challenge. But in NSW this is NOT the case. However any units personally owned would pass via the will.

14. Ability to jointly purchase a residential property with a SMSF as tenants in common. The trust and the SMSF. Trust could then later transfer the units to the SMSF. This transfer couldn't be done in person name and SMSF.

15. Ability for a SMSF and a related party to each separately own units in a unit trust which owns residential property. The units owned by the individual could gradually be sold over to the SMSF as it builds up more cash (from contributions and earnings etc).

16. Ability to extract money from your super, indirectly. eg. imagine you had a UT which owned property purchase for $100,000 but now worth $300,000. You also had $300,000 in super. Your SMSF could buy the units from you and give you $300,000 cash.

17. Use your super to pay off your home. See 16 above. What you do with the cash is up to you.

18. Ability to pledge the units as security under the Personal Property Security Act.

19. Operate a business. 2 people own the units of a corporate trustee running the business. Asset protection and the 50% CGT discount available if the business sold.

These are just off the top of my head and no one should try these at home without supervision by a lawyer as there are many regulations and laws surrounding this sort of stuff and easily to get things wrong.

This is an edited version of my original post on somersoft.
http://somersoft.com/forums/showthread.php?t=89302

 

Hi Terry are 16 and 17 able to be done prior to preservation age or must you wait until retirement/ transitioning to retirement?

 

Could be done prior.

 

I think I need to make an appointment with you - so much knowledge! Will call your office next week

 

See
Tax Tip 139: Abolition of Duty on transfers of Units and Shares in NSW Tax Tip 139: Abolition of Duty on transfers of Units and Shares in NSW

 

20. Ability to Debt Recycle
Units held by person A could be sold to person B who could borrow to acquire them and potentially deduct the interest on the loan. Meanwhile person A uses the proceeds from the sale to pay down their non-deductible debt.

 

21. Ability to leave units personally owned to the trustee of a discretionary testamentary trust in your will so your beneficiaries can get tax advantages, asset protection and income from the trust taxed at adult rates in the hands of children.

 

In Qld would it give rise to stamp duty and CGT?

 

Yes to both