Primary Residence

Are there any advantages buying a primary residence in your family trust??

 

there are some advantages and disadvantages as well

what would be your reasons for considering a family trust ?

 

Some of my clients are renting from their family trust with the trust claiming a deduction. One even rents full furnished. In VIC there can be land tax exemptions for a beneficiary living in a trust property.

 

The major disadvantage to a trust owning a "primary residence" is that it actually cant. Only individuals usually may reside. A trust will face the following potential issues:
- Land tax (Vic has an exception. NSW has a fixed trust exception). Note that if the exemption is given then another property cant be the PPOR and also exempt. This and the CGT provision tend to be the most common concern.
- Lower land tax threshold (ie NSW a Disc Trust can be $0. Most states is less than for individuals)
- CGT main residence exemption (and 6 month overlap and 6 year absence etc)
- Residency tax issues if the trust "controllers" become non-resident. Can also impact the Corporations Act.
- No access to first home concessions
- Finance difficulties vs a individual
- Losses may be quarantined.
- Estate planning complications (or benefits)
- Lack of family law protection.

 

Mingos v COT recently confirmed the well know law that a property held in a trust is not eligible for the main residence exemption

Mingos v Commissioner of Taxation [2019] FCAFC 211

 

Not really.
He just didn't have the relevsnt evidence. A main residence exemption is available for ownership interests which includes legal ownership but also rights whicht reside in a property. This could mean legal title in the name of a trustee of a discretionary trust which lives a right to reside.

 

yep. most of the setups i've seen would generally fail.

 

Given that a person can have an exemption in their own name OR potentially a trust right then one in your own name as a legal owner is far more easier to establish and confirm. The decision in Mingos probably highlights that very difficulty. That said the court seemed to find the manner in which the trust accounts included the property as a trust asset and when sold in 2014 the trust produced a profit which was distributed to beneficiaries all contrary to the claim of a property held in the manner required for the main residence exemption.

ie s106-50 requires the taxpayer be absolutely entitled as against the trustee.

Minos was a solicitor and failed to discharge s106-50

I have seen many accountants fail for this very same reason. The accountant then produces trust financials and tax which are contrary to the legal position.

a s106-50 type trust is not much of a trust. A claytons trust.

 

It seems mingos just tried to give it a shot after the fact

 

After the fact he failed to declare the profit. Primary tax + 75% penalty + 4+ years of interest. Its got to be high on the scale of penalties = 75%. And legal costs. Wonder how that looks ?

Her Honour found:

(a) the taxpayer’s answers on critical questions were “contradictory” and “self-serving”;

(b) the brother’s evidence was “vague, lacking in specifics and highly generalised” and “contradicted by the objective circumstances”; and

(c) aspects of Mr Munro’s evidence contained “contradiction”, were “self-serving”, “unreliable”, “untruthful” and “demonstrably wrong”.​

 

The accounting for the property showed no evidence that he was the beneficial owner either

 

OK thanks everyone.

Looks like its a no go and now I know why.

 

I wouldn't say that as a blanket statement.

It can work well, especially if there is the ability to use the 6 year old on other property so the main residence cgt is not wasted