Unit trust legal and tax advice

Discussion in 'Accounting & Tax' started by DoStovo, 3rd Jun, 2018.

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  1. DoStovo

    DoStovo Member

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    I was wondering if there are suggestions for someone I can see for legal and tax advice about a property trust that I have.
    I have a unit trust structure with units owned by a hybrid trust set up that bought a property in 2007. There is now CGT of about 1M and I wanted to look at selling the property.
    I wanted to change the trust to one that allows for land tax threshold if this does not trigger a CGT event. Also I wanted to speak to someone about how to reduce tax if possible when the property is sold. I'm happy to pay for the advice.
     
  2. Paul@PAS

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

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    You can expect to pay for the advice. I can refer you - Call me.

    The unit trust is easily changed to a fixed unit trust. The hybrid trust is not as easily changed but it may be possible. The unit holdings in the hybrid need review to determine the viability. If its a normal hybrid there will be a CGT issue but its often almost negligible.

    Why wasnt the change made in 2007 ? Thats when the NSW land tax laws changed. You cant retrospectively access any concessions.
     
  3. Terry_w

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

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    If the trustee is going to sell the property is there any need to change the trust structure?
     
  4. Paul@PAS

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

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    Yes. If the sale is to be effected by transfer of the property by way of transfer of control of the unit trust (trustee) and the redemption and issue of new units then purchaser may desire a fixed unit trust prior to the effective change of control and ownership. Then I would expect two law firms would be already involved so I suspect thats not the case.

    However such a change may be ineffective if there is land tax arrears. And nature of the unitholders could even have a surcharge issue. Easier and cheaper to progress the sale prior to 31 December and no changes as Terry said.

    Regarding reducing tax when sold - If its a fixed trust I'm not sure how that can occur ? The CGT outcome should be very clear (subject to the correct calcs). No exemptions occur. Limited outgoings that are non-deductible. Adjustmnets due to depn and cap allowances straight fwd.

    One tip to avoid CGT is ensure that the share of trust income occurs prior to revaluation of the final units redeemed. The deed may not be clear on this issue if its not a fixed unit trust. Terry Mike and I recently considered the accounting issues for this specific issue and its simple. But many accountants get it wrong. They often talk aboout double CGT etc which is really not correct. Can only mean double tax if they dont know what they are doing.
     
  5. DoStovo

    DoStovo Member

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    Yes, that's what I was thinking too Terry. I might just keep it the same. I wouldn't be selling until 2019-2020 probably so I am thinking about whether it's worth the hassle of changing the trust to a fixed trust for land tax purposes for land tax threshold exemption for a year or 2.
     
  6. DoStovo

    DoStovo Member

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    Thanks for your reply and also Terry's.
    Yes, mistake on my part there. Basically I was too busy in 2008 when it came to my attention to make the ammendment. Then the tennant kept saying they were going to apply for the primary producer exemption for land tax but never were able to get it. I should have changed the trust deed it in 2008 and saved land tax threshold for the last 10 years!

    "If its a fixed trust I'm not sure how that can occur ? The CGT outcome should be very clear"
    So a CGT discount would apply even if it's a unit trust/fixed trust owned by a hybrid trust ?
    I wanted to clarify that as the CGT would be significant and if there was no discount available, I would be more inclined to keep it for another 10 years.

    From what I can gather, it was accepted as a fixed trust with the ATO. I had an issue with claiming interest deductibility in 2007 but then they allowed it thereafter after a query so I think they accepted it as a fixed trust.

    With the hybrid trust, I think this was an older vehicle that had an issue with the ATO in 2007, so you can't allocate CGT to different beneficiaries anymore. I am the only unitholder in the Hybrid trust.

    I was thinking of going through the trust deeds with an accountant famillar with trusts and also a solicitor, but I wasn't sure who to see or how much the costs would be roughly. The CGT is quite major for me. The property was bought for 1M and might sell for 5M now. Paul - your firm would be able to do this or Terry's firm would be more appropriate ? I also had a card for someone from Cutcher & Neale as I went on a talk they had on SMSF last month. The other thought I had was transferring a part of the property to my SMSF via the units but then the hybrid trust part of it I am not sure if this is allowable.
     
  7. Terry_w

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

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    You would need to see a solicitor about this as it is legal advice. I wouldn't advise on it myself as it is too risky. I would be worried about causing a resettlement for stamp duty purposes. I could refer you to a more senior lawyer if you want, someone who knows tax and trust law - but please send me an email if you want the details.
     
  8. Mike A

    Mike A Well-Known Member

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    Im seeing chris batten for lunch on wednesday so ill see if he is willing to assist.
     
  9. Paul@PAS

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

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    Chris is an accountant. Not a lawyer
     
  10. Paul@PAS

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

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    Fixing the UT while the units are with a hybrid is often a waste of time. Secondary land tax would claw back any threshold.

    Cgt is a trigger that cant be avoided. Often the biggest impedement.
     
  11. Mike A

    Mike A Well-Known Member

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    Who uses barristers and lawyers to do the work

    You know. You used to work there.
     
  12. DoStovo

    DoStovo Member

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    Terry, I definitely need to see a lawyer with experience in trusts and tax. Thanks for the offer to refer me to a colleage. I'll send you an email.

    Paul, I live not too far from Thornleigh so I'll give you a ring over the next few weeks when I get a day off. I probably need tax strategy advice about SMSF or other structures after I've sorted out the property trust issues.

    Mike, please tell me if Chris Basten deals with this and I'll look into that option also.

    The risk of changes to the trust deed triggering CGT/stamp duty event has stopped me from doing anything to vary the trust in the last few years. Stamp duty would be large and CGT massive.

    I probably need to go over the trust deed with an accountant so I understand the tax issues. I need to see a trust/tax lawyer to find out whether there are any trust changes that might be possible that would be lower risk.
     
  13. Paul@PAS

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

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    If the property is being sold I'm not sure changes are warranted excepting a single year of land tax. The change can cost more than the apparent land tax saving in some cases. The deed may or may not not comply with the terms of a fixed trust but provided there is no mischief thats a minor issue.

    You can have a perfectly compliant NSW fixed unit trust with units so it gets a LT threshold etc but if all the units are owned by a hybrid trust its for nothing. Secondary land tax assessment occurs and the unitholder is taxed on the full land value. So changing the unit trust does nothing since the secondary land tax considers BOTH trusts. eg Land value is $400K. The UT gets a threshold so no LT is due. Secondary assessment issues to the hybrid as a special trust. Assessment is $400K x 1.6% = $6,400. I argue this is why changes have never been made.

    Changing the deed could be a mischief too. You cant now change beneficial entitlements to access a benefit or redirect income without a concern. Thats always been the ATO concern with Hybrid trusts. A hybrid in itself is not the concern. Its the use of one to benefit someone else. Changing unitholders to change taxing will also be a CGT trigger.

    Most people dont change a trust in the situation described due to
    1. Cost
    2. CGT and
    3. Stamp duty (sometimes)

    Changing the trust wont remove existing risk.
     

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