Q: Moving Primary Residence into a Trust

Discussion in 'Legal Issues' started by N_J_H, 13th Mar, 2020.

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  1. N_J_H

    N_J_H New Member

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    If one family member moves their primary residence into a trust for 3 beneficiaries (and that family member becomes a trustee and 1 of the 3 beneficiaries), what are the tax implications.

    There seems to be conflicting advice.

    1. Some say that the transfer (effectively gifting the house to the trust) will be subject to GST and Capital Gains.
    2. Others propose that the trust buy the property from the family member?

    Is there any way to do this tax effectively. The key motivation overall, is to create an asset base in the trust to make further purchases of property.

    Any ways to this this cost effectively? Grateful if you could point to the tax law on this (if not thats ok).

    Thanks in advance
     
  2. Yann

    Yann Well-Known Member

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    Not sure I see much difference to your two bullet points, in both cases ownership changes from one individual to 3 beneficiaries of a trust. I believe that in the two cases, the trust (buyer or transferee) would have to pay stamp duty, and the transfer or sale would be a CGT event, so the current family owner (seller or transferor) would be liable for capital gain tax, if any.
     
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    And why would you not seek legal advice on this ? Yes it will have tax implcations. A CGT event (possibly tax free), stamp duty, legal costs. The reason why needs legal advice. You may be seeking something that may be ineffective or even not permitted but certainly costly. The future CGT lost main residence exemption may also pose some concerns. The trustee may also have highly enhanced risks of being sued in the future - By family.

    Using a trust will not produce any more investment opportunities v personal ownership.
     
  4. N_J_H

    N_J_H New Member

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    Thanks everyone.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    A trust is not an entity but a relationship.
    There are 2 ways to 'get' a property 'into' a trust.

    The owner makes a declaration of trust - now they hold the property for somoene else
    The owner transfers the property to a trustee other than themselves.

    Both will trigger CGT and stamp duty.

    Another way is to transfer title to someone else who holds it as trustee for you. This can be done without triggering duty or CGT.

    GST would generally only apply if new residential property or commercial property.
     
  6. thatbum

    thatbum Well-Known Member

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    The reason why seems pretty weird.
     
  7. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    And consider land tax too. A trust may not be exempt and a lesser threshold typically alos applies. In NSW for example the threshold can be as low as $0
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    The motivation is to make an asset base in the trust to purchase more property.

    What do you mean by this?
     
  9. Hamish Blair

    Hamish Blair Well-Known Member

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    Why not borrow against the property and lend the funds to the trust? ensure interest is paid, the loan is documented on arm’s length terms etc.