Hi Steve,

What country is that from?

I have never heard of gift duty before.

Hi Steve

You can't have your cake and eat it too I am afraid.

In NSW the office of state revenue classes trusts into 7 different categories. If one of the trusts falls under the definition of a special trust then the threshold doesn't apply. They would be taxed on land values at $1 up.

If your trust is classed as a fixed trust then the land tax threshold may apply. But to be a fixed trust the trustee must have no discretion at all in the variation of income or capital. It must be fixed. So if you have a unit trust each unit holder must be presently entitled to a share of the income and capital.

I am not sure about the units being owned by a trustee of a discretionary trust. I think the unit trust could still qualify as a fixed trust if the deed was worded properly. If a discretionary trust were to own the units, then you could not personally claim the interest to buy the units – the DT would be the one claiming interest.

If you set up the trust properly you may be able to do it by having income and capital units. Its still possible to claim the interest as this recent case shows, Forrest v Commissioner of Taxation [2010] FCAFC 6. You could have different classes holding the income units and the capital units. The deed could be worded in a way so as the trustee can determine whether any income of the trust falls in the class of income or capital and therefore the trustee could direct the income to each class at their discretion while each class has fixed entitlements. So you would have a fixed trust with a slight discretionary component.

So it may be possible.

hi Basman

Interesting.

I guess the wife is not on title? And you think he is trying to sell it before the family court can make an order.

I would suggest you get your sister into a lawyer asap and slap a caveat on the property. She should be able to do this under the family law act. If the new buyer hasn't put a caveat on themselves, then she may be able to stop the sale.

Family law court can also make orders against third parties and so you could possible try to get to the bottom of the new owner.

The danger is if the sale goes through the husband will get the cash and then dispose of it, or hide it so later on if there is a property settlement and he is ordered to pay over proceeds he will say he spent all the money.

Yes, Dan it is hopefully only temporarly also.

There may also be additional methods available to protect any personal equity.

hi Steve

Yes you could do the tax returns yourself if you understand it (and the deed allows it) but it is complex, especially if there are losses. You may need to consider things such as family trust elections.

I think you may be able to use accumulated income losses to offset capital gains – but this may depend on the wording of the trust deed concerning the classification of income. This is another complex area with a recent high court case, FCT v Bamford.

re Q6 – only individual beneficiaries would be entitled to the 50% CGT discount, not companies.

?You should be able to nominate the first house as the main residence. But you will then be liable to pay CGT on the 2nd which was sold.  So you need to weigh up if it is better to pay now be be exempt later or vice versa. Factor in the opportunity cost of the money you will use to pay the CGT now. eg. if you claimed the second house as the main residence you can then invest the money which you would otherwise have used to pay the CGT. This may help you may more in the long run than the tax. Also need to consider your incomes now v future projected incomes and changes to the tax system in the future could mean even more tax may be payable.

They could just increase the 1st loan to pay out the second – if there is enough equity etc.

It is still possible to 'negative gear' with a hybrid trust – but you will lose all flexibility and the asset protection will be reduced.
In the past the hybrids were set up in a way that may have been commercially unviable so the ATO disallowed teh deductions in some instances.

You will need specialist advice on this. Also watch out for difficulties in getting finance if you need the loan in the name of a non trustee.

I think your example would probably pass with the ATO.

But what if a person draws down money and temporarily parks it into an offset account and then gets their wages or rents or other money placed into the offset account and then later takes money out of that account don't you think there could be a problem with the deductibility of interest on the initial draw down?

What about the implications of Domjan?