What price to transfer property from personal to trust for development?

Discussion in 'Accounting & Tax' started by thydzik, 30th Jan, 2020.

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  1. thydzik

    thydzik Well-Known Member

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    Hello All

    When transferring a property from a personal name to a trust for development, what price should be put on the O&A?

    I know a separate independent valuation should be obtained for the stamp duty calculation, but I believe the O&A price can be any value?

    Priced too low and the trust will have too much CGT tax in the future and the personal owners won't take advantaged of any CGT cost offsets.

    Priced too high and there would be too much personal CGT and the trust may not be considered running a business due to non logical purchase acquisition for development.

    Or is it advised to get a market valuation and use that?

    Is there anything I'm missing?

    Thanks all
     
  2. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Whats a O&A ? You mean a contract I suspect.

    The market value substitution rule (s112-20 and 103-5 for property) is required to be used for CGT purposes (since a transfer is a CGT event) and the parties are associates. Stamp duty laws also require non arms length transfers be done at market val and a valuation is required to be submitted by the trustee. This valuation most likely would be used for s112-20

    I would be seeking legal and tax advice as the transfer costs may be significant with a tax issue for the trust. The advice should also consider how the trust would finance this acquisition and the asset protection risks and other issues such as quarantined losses that could produce.
     
  3. thydzik

    thydzik Well-Known Member

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    Thanks Paul, didn't know about the market value substitution rule for CGT. so really there is no other way but to get a valuation and use that price on the contract.
     
  4. Trainee

    Trainee Well-Known Member

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    Imagine how big a loophole it would be if you could put whatever value you want for cg purposes.

    would be telling my family to transfer everything to me at $1 as i lay dying, and everything flows into a testamentary trust!
     
  5. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    You arent obliged to use it on the contract. However for duty and income tax purposes there could be implications of using something other than the market value.
     
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  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney

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    Also think
    - finance, and
    - asset protection
    - estate planning

    It is not just what you put on the contract that counts but what is actually paid
     
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  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney

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    Tax Tip 153: CGT on Gifts and Under-market Value Transfers Tax Tip 153: CGT on Gifts and Under-market Value Transfers
     
  8. thydzik

    thydzik Well-Known Member

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    Follow up post on CGT. does transferring from personal names to a unit trust, if the same ownership initiate a CGT event?
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney

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    Yes for a unit trust.
     
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  10. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    And a higher costbase for the trust as it will also have duty and legals to add
     
  11. thydzik

    thydzik Well-Known Member

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    I believe duty can potentially be avoided if ownership is shown to be the same in a unit trust. but wasn't sure about CGT.