Property Transfer from a Family Trust

I would appreciate any input from the Accountants or knowledgeable persons on the following query:

“A Family Trust” (AFT) owns a small commercial property. It is leased but has been advertised for sale for an extended period with minimal inquiries, so a sale is looking unlikely given there are no apparent buyers.

AFT is registered for GST and the sale would also be subject to GST.

As other assets of AFT have now been disposed, AFT is no longer being used to full advantage and the costs (accounting/ASIC/lodgement etc) of maintaining AFT are considered to outweigh any benefits given this is now the only asset in AFT. Hence it is therefore intended to close AFT and its Trustee Company once the property is disposed.

Query:
Although the preference is to sell the property to a third party and close AFT, other than the costs of stamp duty on transfer, what are the financial implications if the property was sold or transferred to a family member at market value?

Obviously, CGT would be applicable to AFT. AFT could then be closed in the current FY and the new owner could either hold the property or sell it in the future at a more convenient time. However, if the new owner were a family member it is unlikely they would be registered for GST. If the stamp duty costs were not prohibitive to the new owner, could there be any future advantage in not having to apply GST on a lease or future sale?

 

Sounds like legal advice maybe @Terry_w has an opinion

 

Financial implications of trustee transferring to a family member?
- generally trigger duty, but not always
- cgt
- new loans
- GST

 

In wa you can potentially vest a family trust (transfer land to family members) and not trigger stamp duty.

The sale of a leased property might enjoy the gst going concern exemption and not require gst to be paid. To qualify however the family member purchasing the property will need, among other things, to register for gst.

A lot of family trusts do not actually help anybody. You should look at all of your structures yearly and see if you can simplify them.

 

Great, I will investigate.

I have already been advised that GST will be applicable on the sale, however, I am not sure why you have stated the new owner would need to register for GST given their turnover would be below $75k?

I understand that they could then invoice a tenant without applying GST, but I am not sure whether they would then need to apply GST on the sale in the future.....?

Totally agree. This family trust has now outlived its usefulness, hence why I am disposing of its assets and closing it down.

Thanks Ross and Terry for comments.

 

if the property is in WA this may be of interest

Legal Tip 54: Stamp Duty Transferring a property from a trustee to a Beneficiary in WA Legal Tip 54: Stamp Duty Transferring a property from a trustee to a Beneficiary in WA

 

A property under a lease can be sold using the going concern concession. This will allow the property to be sold gst free. There are some requirements to be met to enjoy the going concern concession. One is that the buyer is registered for GST.

 

No gst exemption if you’re a going concern (in the business of leasing)?

 

Not necessarily....There are two limbs. The second is : "required to be registered".

 

Does the lease provide that the rent may in fact be charged in this way? ie as a grossed up rent.

 

If a property is sold on the GC basis the new owner cant unregister without an adjustment event that triggers repayment of the GST that would have otherwise applied. And their tenant will continue to pay GST. You cant just look at the turnover test. The GC basis just simplifies the tax issues between buyer and seller so neither account for the GST.

This a fundamental element of the tax advice needed. Many other elements too.

 

The lease states that ".......any rent or payment obligation does not include GST ......" and that "......if registered for GST, the Lessor must provide the Lessee with a GST tax invoice...."

Given the current owner is registered for GST there is no issue, but if sold or transferred, the new owner would not be registered for GST. In this case I expect that we would amend the lease to reflect this.

I have already been advised and have stated that GST will be applicable on the sale, so the Going Concern provision would not be applicable.

Thanks for all comments as it has triggered a few more queries for my accountant.