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A little bit off topic but just to throw it out there for the professionals to ponder over: Peter’s comment ‘And you will NEVER get the main residence exemption in a trust” may not necessarily be correct.
There is a scenario where the beneficiary lives/rents the property in the trust (IT 2167 allows this). A long term lease contract (+50 years) is drawn up (using a solicitor who understands this) for this tenancy where the tenants treats this property as their main residence. In this case the beneficiary and the director of the company trustee of the trust are the same person. Years later, when the trust goes to the sell the property the trust will need to remove the tenant as required by the purchaser. In order to break this tenancy agreement the trust will need to pay the tenant (who is also the beneficiary) an amount which just happens to be similar to the amount of the capital gain the trust would receive in the sale of the property. The long length of the tenancy agreement is important here to justify the significant break lease payment to be received. This break-lease payment will increase the cost base of the property which in effect will reduce the amount of the capital gain. The payment from the trust received by the tenant (which would normally be seen as the capital gain amount) can then be exempt from tax using the main residence exemption. Main residence exemption requires there to be an individual and an ownership interest (ITAA97 118.110). Ownership interest includes a licence or right to occupy (ITAA97 118.130) which is the long term tenancy agreement.
Structured correctly, there is no tax avoidance or benefit being received here other than the benefit of asset protection through the trust structure compared to owning this property in your own name.
Disclaimer: I have not yet seen this tested or been applied by any of my clients. I have only heard that others have done this.
I have queried this with various other tax professionals who are not sure on this either (they have not seen it). One response said the payment to the tenant would not be seen to be at arms length which I think is arguable with the carefully drafted long term lease agreement.
Something different to think about, like i said throwing it out there for professional tax agents/lawyers to ponder over.
Marcus | CTA | CPA
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Marcus | CTA | CPA
Invest in yourself first. Education is everything.
