Quirky family strata development: legal and tax structure musing

Hi folks,

I’m puzzling over some legal advice on structures, and what questions we should be posing the accountants on this one, as it has some quirks In typing this, I realise it’s a big question, but will pose it anyway for people’s interest, and in case anyone has some thoughts (like maybe ‘that’s a crazy plan!’).

My self-funded retiree parents (in their 80s) are planning to strata title their 2.5h block in a busy holiday town, east coast Tasmania, that contains their home in one corner, in a staged development so that over time 8x 100sqm houses will be built forming an ‘eco-community’ – with shared common property including a ground solar array. They bought it in 2004 for $500k, now valued at $675k.

The parents’ block has a 1500sqm corner cut out of it on a separate title, with a holiday shack on it. My brother bought that in 2008 for $200k (now valued at $250k). My brother would like to be part of the strata for access to the common property, and to ensure that cottage is captured by the strata ‘eco’ rules if he sells it down the track; so the whole block operates as a ‘community’ of like-minded folk. So there would be 10 lots in total plus common property.

Part of the objective is:
- My parents objective is not really profit-orientated, but some profit would be nice!
- They would like to see their bush block developed to meet housing shortage in an eco-minded way (the new houses would be modular houses built off site, which is a bit cheaper)
- They would like to realise some cash, such as selling two of the new lots, or selling their main house and moving into one of the new lots.
- They would like to effectively gift 6 of the 8 new ‘land lots’ to their three sons as early inheritance (ie. the sons would receive the vacant land free, but fund the houses on that land for sale or rent).

There are a lot of variables in the potential plan which I’m sure will become clearer as to which makes sense with accountants advice! That might be helped if we ask the right questions! For example, whether the land lots are gifted as vacant strata titles, or developed with sons financial input and then gifted to the sons (or developed and sold, and funds realised gifted).

It is likely at least two sons would want to fund and retain a house for rental, rather than sell.

Looking at the local town sales, the lots if developed with the eco-houses would sell for maybe $450k each. The lot land value alone might be about $100k, bolstered by the common property value. The construction price including common/lot infrastructure might be about $300k.

The legal advice has contemplated a discretionary trust is the way to go with parents and three sons as beneficiaries. The advice suggests that my parents and brother would transfer their properties to the trust, the trust would give back those two properties as strata lots to the parents and brother, and develop or transfer the other new lots (or sale income) to the beneficiaries over time. This would involve some $33k stamp duty and $9k CGT as the two properties transfer into the trust, but is said to have the advantage that any transfer of existing and new lots to beneficiaries is exempt from duty.

Among the other advantages the advice describes are that the trust can develop and sell units, with financial contributions from the sons, and the income from sale can be divided between the parties in a way or timing that minimises tax as far as possible, or the trust can pay the tax. I’m not sure what the GST implications are.

But I wonder if we are overthinking it as a family. Perhaps the parents developing the site as owner developers would work (which the advice does note is an option). They can develop and sell some lots, gifting some income to sons if they want to, and/or gift some vacant lots to the sons to develop in their own names (and sons reimburse the parents the CGT cost if so)…

Man, maybe it is a crazy plan To cut a long story short, any top tips on questions for the accountant or other observations would be much appreciated.

Cheers,
B

 

You need to speak with both your solicitor and accountants - preferably simultaneously as it requires both legal and financial advice.

Possibly need to consider community title rather than strata but your solicitor/surveyor should be able to provide further guidance.

Also chat with a real estate agent or two to gauge demand, values, features etc to confirm viability.

 

Sounds like poor advice so far. Why would you want to transfer the property to the trustee of a discretionary trust when the owners are in their 80s? What advantage would this give?
Why would there be gifts? What advantages would this give?

 

Hi Terry,

I think the parents initial thought was “we don’t need all this property or the headache of being developers at our age, let’s just give 6 of these empty lots to our sons, and they can deal with the process of developing them under the strata plan and keeping or selling as they wish”.

What would you suggest, in ball-park terms?

cheers,
B

 

Is there such a thing as vacant strata title?
Is there any cash available to fund this development?

 

They retain the properties and set up a testamentary discretionary trust in their wills.
seek legal advice

 

In Tasmania, staged strata titles can be released on vacant lots, and the lot owner is then required to develop in accordance with the staged plan. There’s about $600k in cash, and borrowing capacity.

 

Check planning and development first. Also will there be any objections on DA to a bush block being cleared for development. Which part of east coast?

 

The Swansea area. The block is sparsely bushy, so can meet all da requirements and do minimal clearing, for the bushy eco feel

 

I would just get sound advice. Why are all these parent development ideas always asked by their well intentioned kids?

 

Is the Cambria Green project going ahead there?