Plan Structures Early Although it is possible to transfer existing assets to a new ‘structure’ it can be very costly in terms of taxation and asset protection. Transferring real property into a trust will result in stamp duty at market value as well as CGT (unless the main residence exemption applies). Sometimes these costs may be worth incurring for the potential benefits of asset protection, future tax savings and immediate tax savings. More concerning are the asset protection issues of transferring. The claw back provisions of state legislation as well as the bankruptcy act will need to be considered. Transferring a property for asset protection reasons will basically provide little asset protection at all as transfers done to defeat creditors, even future creditors, can be overturned. So careful planning is needed. These transactions will also need to be done at market value for both tax reasons and for asset protection reasons. Transferring a $1mil house outright to a trust will result in the former owner having $1mil in cash. Similar asset protection issues arise as the net asset position will be the same. However cash is easy to spend and easier to transfer than real property so the person owning the cash may give it away. But the clawback provisions of this also need to be considered as the cash can be clawed back potentially as well. So plan ahead a bit so you do not need to restructure.
Good post Terry. I can give an example of this. Myself and my investment partner bought a site suitable for development to build two townhouses. We want to build, subdivide and then I would transer my share of one townhouse to him and he would transfer his share of the other townhouse to me. He would own one townhouse on its own title and I would own the other townhouse on its own title. Sounds simple. My understanding is my transfer to him would trigger: stamp duty, capital gains tax and GST. His transfer to me would trigger: stamp duty, capital gains tax and GST. In total, this could cost us tens of thousands of dollars each in stamp duty and tax. If I had know of this prior to purchase, I could have arranged for the property to be purchased in a suitable structure which would have minimised the amount of stamp duty and tax. I agree with Terry. You need to get the advice of structuring before you even put in the offer or sign the contract.
Thanks for the real life example PG. And I should add I am not limiting the structure to a trust - the same thing applies to individuals. I see so many people not consider the effects of buying in say joint names and then realising it doesn't suit their circumstances and they want to transfer the property to 1 name. Same issues apply.
Hi @Terry_w, An accountant recently advised me to setup the following structure. It resonates a lot with what you mentioned above (to me at least). Any advise on the structure?
Accountants can only give tax advice (assuming they are tax agents) all the rest is legal advice - terms of the deed - who should take what roles - structure of the company - succession - trustee duties, powers - beneficiary powers etc
