Tax Tip 52: Trusts and the main residence exemption for CGT

Discussion in 'Accounting & Tax' started by Terry_w, 11th Oct, 2015.

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  1. Terry_w

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

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    Trusts and the main residence exemption for CGT


    Discretionary or Unit Trust owned properties do not get the main residence CGT exemption under section 118-110 of the ITAA 1997. This applies even if the residence is being used as the main residence of the trustee or a beneficiary of the trust.

    See the legislation below and note the bold bit below, s 118-110(1)(a) clearly states the exemption is only available for individuals.

    http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.110.html


    Note - there are limited exceptions such as for a special disability trust which can be exempt from CGT.

    Keywords: CGT; Trusts
     
  2. Paul@PAS

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

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    Vic has a land tax exemption for trusts when a beneficiary resides. Arguably its out-trumped by the CGT issue. I have seen trusts with issues which negate the CGT issue etc....Non-residents etc
     
  3. Terry_w

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

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    Note that CGT applies to an 'ownership interest' which could be something other than legal ownership
     
  4. Paul@PAS

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

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    A unit trust owning a interest of an individual who resides could be a concern too for asset protection. The legal basis as to why a individual wants or seeks to own their "home" in a UT may be unsound as the trust interest is still a asset exposed to creditors. Its a indirect ownership interest. However I have seen cases where a person changes mind and moves into a trust property. If its a fixed unit trust its possible that the MRE can apply. If I am asked about this I must defer to legal advice as I cant give legal advice so asking a soliictor would be wise. Its also possible in some cases to reconsider ownership and it may even be possible to effect a change of legal owner that doesnt involve duty in some cases. Seek legal advice.
     
  5. Terry_w

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

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    Unit trusts can give superior asset protection to direct ownership in cases where tenants sue.