Trust or personal CGT?

Discussion in 'Accounting & Tax' started by Khufu, 14th Jun, 2022.

Join Australia's most dynamic and respected property investment community
  1. Khufu

    Khufu Active Member

    Joined:
    26th Apr, 2021
    Posts:
    37
    Location:
    Brisbane
    What delivers a better outcome in the following scenario for an asset that appreciates over 5 years and is then sold:

    1. Asset held by a corporate trustee on behalf of a discretionary trust. I assume the sale be regarded as a CGT event and it would get the 50% exemption. Does the non-exempt component get classed as trust income which then gets distributed to the beneficiaries? And if the beneficiary is on the lowest tax threshold, do they only get taxed at that rate on the percentage of the non-exempt capital gain?

    2. If the beneficiary is on the lowest tax rate, would they be in exactly the same position if the asset was held directly in their name? ie the asset sale is a CGT event and 50% of the gain is taxable at the taxpayers marginal rate?

    3. If you kept it in the trust structure, could you cycle the capital gain into an another asset that falls under the instant asset right down provision, and use that to offset the CGT?
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Impossible to determine. State? Land tax? Neg gearing losses etc,
     
  3. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    1. it might be corpus
    2. possibly, but the beauty of the trust is the flexibility for someone else to receive the income.
    3. what is that provision? What is the trustee selling.
     
  4. Khufu

    Khufu Active Member

    Joined:
    26th Apr, 2021
    Posts:
    37
    Location:
    Brisbane
    In this case, not physical property per se but a family of related domain names. The best domain selected and used for a business, the others just parked and not used. I want to know whether its better to record the parked domains as personal or owned by the trust structure.
     
  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Domain names are intangible rights not property. Legal ownership may differ to a license to use. Legal advice time.

    Sale could be revenue not a cgt event. Could also be stapled to a cgt sale of a business. Sml business exemptions?
     
  6. Khufu

    Khufu Active Member

    Joined:
    26th Apr, 2021
    Posts:
    37
    Location:
    Brisbane
    Domain names aren't intellectual property?
     
  7. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,394
    Location:
    Sydney
    They are intangible in that you don't actually own them - you licence them.

    When you "buy" a domain name, you only acquire the right to use it for the registration period (usually 1 year, up to a maximum of 10 years for some domain extensions) and with some domains (eg .com.au) if you no longer qualify to hold the domain (eg no longer in business), then you lose that right.

    I'm not sure how the law treats domain names from an asset perspective these days - haven't looked into it carefully enough.

    Why wouldn't they be owned by the business they are related to?
     
  8. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    It depends on how you would want to define intellectual property.
    Legally domain names are 'property' - e.g. under the corporations act, bankruptcy act etc for CGT purposes a domain name is a CGT asset too.

    asset protection mainly.
     
  9. Khufu

    Khufu Active Member

    Joined:
    26th Apr, 2021
    Posts:
    37
    Location:
    Brisbane
    If they are purchased personally for personal use, and the initial domain purchase price was just $20, would the CGT exemption for personal use assets purchased for under $10k apply (even if later sold for $30-$50k)?:


    'A capital gain on a personal use asset is subject to CGT if it cost you $10,000 or more to acquire the asset....Personal use assets are CGT assets that you keep for your personal use or enjoyment.'
     
  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    The issue of domain names, trademarks, designs, patents, brands and such intellectual property "rights" is a good issue for a legal adviser. In many cases it may be wise that a seperate entity owns these and licenses their use.This can be a issue in franchises for example. Yes, asset protection is key as you dont want a trading entity losing its largest value asset to a creditor etc if receivers or a liquidator are involved. Look at the spat between Kylie Minogue and Kylie Jenner for use of the word "Kylie" in the context of cosmetics, perfume and other product.... Thats a great example of where ownership domain names and such IP mean nothing. The intrinsic rights may be asserted in other ways. What is a legal right here to use a domain may not be acceptable under intenrational conventions etc We see that with company names. ASIC just requires a name be unique. But try registering a legal company name with the word Virgin in it and expect a letter fro a law firm. Then the domain will be attacked etc

    Intangible and tangible intellectual property can be individual and even worthless on their own but are commonly a collective CGT pool of assets that give a business its core capabilities and objects. And often have immense value. More than trading profits.
     
  11. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    I don't think so, but this is something you should seeh advice on
     
  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    I would sincerely doubt it. There is no personal use and enjoyment of a domain which may be essential held to produce income or trade for isolated profit. Hence not a CGT asset either. The tie breaker CGT rule will apply and the CGT loses to the ordinary income rule. There is no personal use...and enjoyment. Even if it was paid personally. The nature of who pays isnt a requirement of the personal asset rules.

    People often think they can hold and sell domain names. In reality if a domain isnt being used its more likely to be lost to dispute than sold. There is a process for non-use to be determined IP Australia says If someone has licensed a domain name the same as or similar to your trade mark, you need to lodge a complaint with auDA. This only applies to the .au country code – it doesn’t extend to other countries, nor generic top-level domains such as .com or .org regulated by other bodies. There are many ways to lose a domain. Legal dispute could also occur which creates a civil action. ACCC etc

    Complaints and disputes | auDA
     
  13. Simon Hampel

    Simon Hampel Founder Staff Member

    Joined:
    3rd Jun, 2015
    Posts:
    12,394
    Location:
    Sydney
    Just to clarify this point for other readers:

    Paul is specifically referring to .com.au and .net.au domains names - and I guess .org.au, but they are much more difficult to qualify for, so it rarely becomes an issue.

    There is a new .au direct domain space (ie propertychat.au) which has recently become available - and the only requirement is that you have a direct connection to Australia - specifically "an Australian presence" as per the auDA rules.

    There is currently a priority allocation process underway until 20th September 2022 whereby existing holders of Australian domain names may apply to register the corresponding .au direct domain name.

    If there is no existing domain, you may register a .au direct domain immediately - even as an individual living in Australia, no need to be a business or organisation - although they may also register .au direct domains. After 20th September, all .au direct domains not already registered become available for any Australian to register.
     
    Paul@PAS likes this.
  14. Khufu

    Khufu Active Member

    Joined:
    26th Apr, 2021
    Posts:
    37
    Location:
    Brisbane
    These are .com domains. A blog could be personal use I would have thought? It might not exist for a profit motive.
     
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Tax Office ruling would be wise. Isolated profit is not same as "for profit".
     

Buy Property Interstate WITHOUT Dropping $15k On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia