What to expect if transfer family trust house to trustees' own name

I own a house under my name in Adelaide (house 1 ~$500k), and it is always my main resident. Three years ago, my wife and I bought an investment property (house 2 ~$540k) using equity from house 1 under our family trust. We rented out the investment property for a year. Later, we used all our borrowing capacity to raise ~$200k fund to extend the investment house. We moved in after the building work.

I thought We didn’t structure the ownership very well.

First, I probably considered the property protection too much by using family trust. This is what we need, but not too urgent in the next 10 years.

2nd, I know I can distribute income to the Trust beneficiaries, but again I may not need to do this in near future.

3rd, we don’t understand Trust too well and didn’t realise the complexity of Trust.

4th, we did pay for an accountant to help us lodge tax return, but he seemed to be not professional after reading the tax tips from this forum. For example, he said I didn’t need to lodge trust tax return if there is no income. He wasn’t really sure if I can claim this investment property as my main resident.

There are a few problems with this ownership structure.

- we’re planing to sale the house 1 in two years.

Question: Will I lost my main resident exemption after two years? (my parents still live there)

- We may purchase another house for my elderly parents to live in after sailing house 1.

Question: What ownership should we use if we buy another house for my parents?

- We started to pay land tax on house 2.(Adelaide has very low land tax threshold ) Not much tax at the moment, but the land value increased at very fast rate. So I worried I will pay too much in the long run if I intent to live for 10 years because it is within a good public school zone for my children.

Question: Is it a wise move to put in an objection form for the land value? It seems to be a 10% rate increase for land value for this suburb.


- We will focus on share and private business investment in the next few years. So the main resident exemption for house 2 seems too import to give up.

Question: What do we expect if we transfer house 2 from trust to one of our own names (or joint names)? or any other suggestions? (my wife and I are the trustees)

- Because of the building work for house 2, we don’t have any income from it. But I do have large amount of building cost.

Question: Do I save all receipt for future sale as cost base? Or can I claim some of them as deduction within the same year during trust tax return?

Appreciate for any suggestions~

 

Your post is confusing


1. Not enough info. Possibly not

2. Seek specific legal advice. This is like asking what medicine should I take without knowing the illness

3. Hard to say

4. Expect CGT and stamp duty to be triggered and new loans to be required. Speak to a lawyer about possible exemptions

5. Depends if the receipts are for capital costs or repairs, and whether the property will be available for rent.


Who advised you to have this property held by a trust?

 

What do you need asset protection from?
This has cost you a lot of money already given the stamp duty and cg you are probably up for.

Own a property in your name, own another in a trust, move your parents in probably without rent, then you move into the trust property? Couldnt make it worse if you tried.

 

And why do you think this would provide asset protection?

 

Thanks Terry! I admire your knowledge in this forum. Can you help me with this so I can plan my next move for my mistake. Yes, I made a terrible mistake.

 

The OP question requires legal advice from a duties specialist in the relevant state. I say specialist as many solicitors dont know the issue which arises under common law and has support of case law. I wont cite them as it is misleading to suggest it always works and I would always expect someone to seek legal advice which I could never provide.

In some states the transfer cant be stamped since there is no change of legal owner. It is refused stamping. In some states ad valorem duty or a transfer fee is payable. And in one state it is absolutely dutiable. Legal costs are often a consideration but may be minor. The issue of loans and a mortgage must also be considered. And the issues concerning trust beneficiaries. A breach of trustee obligations may create a liability for the owner.

However it does trigger a CGT issue of course.

Some states have indirect duty laws. Others have a value limit and more....

But there is nothing to claim. A main residence exemption cannot occur with a property owned by a trust. It wont be exempt from CGT. One state at least does recognise a land tax concession however. If you reside in a property owned by a trust you need to understand what may happen if the trust reports rental income and expenses too. There is old case law on that which may misrepresent as being a permitted tax arrangement.

ITAA s118-110 read s118-110(1)A(a)...Individual.

 

Thanks Paul for your info! Any suggestion RE how to approach a law professional. Would they be honest about what they can and can't?

 

Find a stamp duty focussed solicitor in the state of the property. They will understand vesting, merger and the relevant duties act provisions. And can address the tax issues and other legal issues.

 

Still seems like your looking for advice on specific steps before considering the big picture.

 

Help with what?

 

Op do you actually have a goal here? Your just looking for moves to fit how you use the assets now, not thinking about the future. Which is how you got into this mess.

 

Help to sort out this mess and plan a big picture. How do you customers get in touch with you RE planning and tax issue? eg. by appointment, once a year, or as required

 

I am seeking help from professionals here. Goal is financially freedom.

 

Thats not a goal anyone can work with. You putting that property in the trust probably made sense at the time, then you changed everything. No structure works in all situations.

For example you want to buy a house for your parents to live in. What is their situation? Debts? Super? Pension? Succession planning? Do you have siblings?

What is the plan with the place you live in? Did you try to understand what would happen before you did a big renovation and moved into it? Why do you think you need asset protection, and what are you willing to give up for it? Is it because you run a high risk business? Or because you read some US internet site that asks what happens if someone sues you after you hit their car? How long will you live in it, and what happens after?

 

By appointment but I can't take clients for the moment due to family issues