A bare trust is a trust where A holds property for B absolutely. There is no discretion involved as the beneficiary is absolutely entitled to both the capital and the income of the trust. There is no nudity involved either. An example would be Mum holding property for a minor child. When the child reaches 18 they can demand title be transferred to themselves. A bare trust can also be used to hide ownership - you want to buy the property next door, but don’t want the neighbour to know you are the potential purchaser so set up a Bare Trust and have the trustee enter the contract and purchase the property. There are CGT exemptions on the transfer from the trustee to the beneficiary and most states also provide stamp duty exemptions. Proper evidence will be needed to demonstrate the trust relationship was in existence from the beginning - as you can imagine it would be open to potential abuse were this not to be the case. A bare trust can work well where there are 2 parties wanting to buy one block of land and then split it with each party taking one block each. This is normally a CGT event and a dutiable event, but combined with a deed of partition it may be possible to avoid both by using a bare trust. See Legal Tip 77: Joint Purchasers of Land and deeds of partition https://propertychat.com.au/communi...urchasers-of-land-and-deeds-of-partition.3888
For the tax issues see Tax Tip 49: Transfer of Title from Bare Trustee to Beneficiary and Tax Issues https://propertychat.com.au/communi...e-trustee-to-beneficiary-and-tax-issues.4546/
@Terry_w, is the trustee of a bare trust personally liable for debts of the trust related to the asset they're holding? Sorry if I'm going slow, but I'm trying to think through this scenario... couple amicably divorcing, PPOR is highly leveraged due to recent purchase and market drop - it's at 90% LVR. PPOR and mortgage were in joint names. Both parties want wife to stay living in PPOR with kids and take over mortgage. Wife can afford repayments, but they don't want to pay LMI that would be required to transfer mortgage into wife's name. So basically, husband is happy to transfer title to wife, but due to bank's requirement for LMI, a straight transfer doesn't seem practical. Of course, if husband is to transfer title, he also wants to be off the hook re wife's handling of mortgage, too. Could they agree that the couple holds the PPOR on bare trust for the wife? If so, would the husband be released of further liability with respect to the property and its mortgage? That's sort of what I'm hearing, but it also doesn't seem right to me that you'd be able to defeat a bank's mortgage so readily, so I suspect it's not viable...
Yes all trustees are personally, but can have recourse to the trust assets. If the husband declares he holds his share for the wife if the loan agreement isn't reentered into he is still bound by the old agreement, and even if a new one entered into the husband will be personally liable. If things go bad though he could potentially make a claim against the wife.
When you say the husband would still be personally liable even if there's a new loan agreement (eg wife takes our mortgage only in her name), on what basis is that? Because he's on the title? That wouldn't apply, because if the wife takes out a new mortgage, they'd also transfer title - it's only the challenge of renewing the mortgage that's blocking transfer.
Ah true. But it would be a breach of their loan agreement to declare a trust without the mortgagee's permission (probably) so if they both qualify for a loan together they could do a new loan now (but lenders won't lend for bare trust situations actually) and then the wife could later qualify for a loan on her own and transfer title.
Maybe this question has been answered. If person A holds land in bare trust for person B, how is land tax levied (assume Vic). Assume ‘person A’ is company, and holds single property (ie. the property in this example) in bare trust for person B. And person B has large land holdings , so higher land tax threshold than ‘person A’ (who only owns current single property) Is land tax levied: 1) at the company rate (person A), or 2) at the trust rate (against person A as trustee), or 3) against person B (as beneficiary of bare trust).
At the time of registration the relevant trust documents are required and OSR will assess based on this. eg In most cases a SMSF custodian trustee will be registered as if the SMSF was holding the property and allowed a threshold. Remember too that this trust documentation was required so that future duty is not payable to revert ownership to the owner (ie SMSF) Its all part of the process of seeking legal advice on such issues.
And maybe get a private ruling. I assume the SROs do these and they operate in a similar way to the ATO private rulings.
NSW and VIC do, in QLD there is no private ruling system so it is a take a risk and see what happens approach.
QLD OSR are always happy to give written response on a issue and they act like a private ruling. QLD duties are more complex than any other state and the bare trust is something to be cautious with in QLD. Darryl Richards at Certus may be able to assist.
Hi Terry, What are the differences between a bare trust, minor trust account and an informal trust? From what I've read on the ATO pages when setting up an informal trust for say to invest for a child, you quote the parents TFN. -but that seems to go against what you write about a bare trust where the beneficial owner's (child) TFN should be quoted.
The ATO will consider all the facts. If the money is for the child to benefit then the parents will not need to lodge and report the income despite the TFN matching. ATO prefill will show the accounts but they must be removed. We see that a lot. However if its more than the low threshold of $416 the child will need a return to report the income and pay a high rate of tax (66%?) and have their own TFN. There are smarter tax free ways for kids funds to be invested such as insurance bonds. We often see parents who get asked to explain omitted interest of $20-$30 a child. ATO see the accounts are for the child and parents dont use the account (they ask these 2 q's) and they ignore it. Bank will put the account in name as follows : Jim & Mary Jones as Trustee for Master Paul Jones. The parents are IDd etc. Parents dont "setup " a trust for their child. Parents and guardians ARE the legal trustee for a child. Most banks have a requirement at age 14 to ensure the account is in the child name not the parents. The kid is then ID and given a card and PIN and even online banking when they are age 16. The TFN field may then be blank until a TFN is obtained often age 16+ when they seek work at maccas etc. Bank will hassle the child at age 17 if they dont have a TFN.
