Own vacant land worth approx $240 with current loan of $55K (intending to build IP). Looking to to purchase new family home value of $400K my question is as follows:
Would it be possible/ worthwhile to set up discretionary trust transfer ownership of vacant land to trust (incurring CGT and fees in the process) refinance to 80% LVR use proceeds as deposit for new property then claim interest on new vacant land loan as a tax deduction prior to commencing build whilst at the same time purchasing new family home as IP rather than PPOR and rent back to family at market value in order to negatively gear? Understanding that CGT would apply to any future sale of same property and there would be land tax implications.
I am about to commence new long term contracting postion and have opted to contract through an employer trust where I am receiving a distribution rather than a salary – assume I could have the distribtution through this trust paid say 50% me 50% to family trust thereby giving the trust an income stream to offset the aforementioned deductions against??
I am out of my depth on all fronts any assistance would be very much appreciated…..
Lets break things down a bit.
You want to sell your land to a trust. That should be ok, and the trust will be able to borrow the money to buy this from you. Since your trust is borrowing 80% it needs to come up with another 25% for deposit and costs. You could lend the trust this, or do some vendor financing. The trust should be able to claim the interest on the land if it intends to construct an investmnet property.
On the sale of the land, at market rates btw, this will release some cash into your hands. you will probably have to pay CGT on this. And the trust will have to pay stamp duty.
If you are going to purchase your new home through the trust structure, then you need to be careful as the ATO may scrutinise the structure. So get some proper advice and and make sure you can prove market rates etc.
If you are going to purchase in your own names, you could live in it and establish it as your main residence, then later move out and still be able to claim it as a CGT exempt asset. This may be preferrable to owning it through a trust as the long term CGT savings and land tax savings should be more than the short term tax savings by claiming the negative gearing benefits.
be very careful about contracting via your trust too as there are various rules you must meet to avoid the alienation of personal service income rules. eg if 80% of your income comes from one sourse you could be taxed as if the income was your own.
So i would suggest you pay a good accountant to set things up properly for you. Or you could be left with a trust with a huge loss which may be unable to be offset against your income from employment.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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