Dear All, I am a high wealth individual. I have PPOR 6mil. I have 5 investment properties under my personal name (12mil value) , wife has another 5 (12mil value too) under her personal name and we have a couple more under a family descretionary trust. All properties are in NSW. We are paying close to $150k in land tax per year - for those that pay it knows how much this sucks. I would like to purchase a new property in a family unit trust with the only benificary being my minor son who is 12 years old. The reason for this is acording to revenue NSW, Family unit trusts are considered as fixed trust and consequently will get the land tax threshold which could save us approx 16k per year. The property will be rented out and any income will go towards mortgage payments (neglible income). The mortgagee would be family descretionary trust where the interest earnt income can be distributed effectively. The property will be sold once my son turns 18. The aim is for him to get the 50% CGT discount. I have other children too and I wish to be able to do the same for them. I hope I have filled in all the details. Does this sound like good strategy? What are some pit falls apart? Aim is to get the 50% CGT whilst minismising land tax.
It would need to be a fixed trust for starters and that would mean the units are assets of the child. They would be absolutely entitled to the income and capital, subject to the trustee's expenses so any capital gains income would be an asset of the child and exposed to future claims from creditors and spouses. But this might be ok though. something to take legal advice on - from a solicitor
Yes I understand the risks associated with asset protection. One way of minimising it is by having a mortgagee on the property from the seperate family discretionary trust. This would minimise the equity in the property and the rent will go towards the interest until the child turns 18 when they can sell it. Is there any other issues around tax that you could see?
No such things as a "family unit trust". As Terry say you do need a fixed unit trust. Fixed unit trusts generally will not have rules that limit unitholders to family - But it could be logical to do so via control. Negative gearing is one issue. Also consider a "new" property and depreciation which will keep the neg gearing high as will interest. The trust may accumuate losses. There is also another with how borrowings are structured. Normally a fixed UT has merits where the unitholder borrows not the trustee. But a child has issues doing this. Merits of company trustee v human trustee may be higher here and some control over trust. This can be addresssed in the trust and trustee company. One issue to consider is that son will NEVER own the property and cant get main residence later either. Well not without a lost of cost. Sale of the property may be encouraged by this limit A company may also have some merits despite no CGT discount the tax rate is overall less. Son then is a mere shareholder. Accumulated loss can be held in company until the gain occurs. Land tax threshold etc. Shares (like trust units) will be in YOUR name/s but non-beneficially owned as legal guardian and parent.
Negative gearing - there will be non. The property will be neutral (not positive and not negative) via the adjustment of the interest rate by the related family trust. borrowing - will borrow from family trust. trustee - will be the same corporate trustee as the family trust. ‘One issue to consider is that son will NEVER own the property and cant get main residence later either. Well not without a lost of cost. Sale of the property may be encouraged by this limit’ - could you pls explain what you mean here. There will be no loss. The idea is to hand it to him at 18 to turn into his main residence or sell it.
I have. Apart from the usual risks of giving a minor assets the family solicitor couldn't really shed anymore light. He just advised to get independent tax advice.
I come from property development and trade quite often. Some deals have gone bad and we ended up in Supreme Court with Silks. due to past audits, had plenty of advice from tax lawyers. We have lawyers in the family too. Usually what I find is that everyone knows a little bit about everything but as soon as you press down on the detail, the whole thing changes and it’s not a one size fit all approach. A statement of advice is pretty useless when the first 5 pages are filled with disclaimer. The devil is in the detail, and the so called experts sometimes don’t know what they’re talking about.
I have never in my life seen a trust that manages to have exact neutral income issues without other serious tax issues
