If a Family Trust owns only a property which makes a loss (the rent does not cover the interest and other expenses including any depreciation) that loss can not be distributed so remains in the trust. When the property is sold and hopefully there is a capital gain can these carried forward losses be used to reduce the total income distributed that year? If so do you still get the tax deductions when using a trust but not until you sell or until the property starts making a profit. Are any deductions that you may be able to make if the property were owned in your own name completely lost if buying in a trust or are they just delayed?
Thanks
Cathy
Trusts are considered separate entities for tax purposes. So any loss resulting from income will be carried forward but cannot be used to offset anyone else's income.
If a trust sells a property and makes a capital gain then this is different class of income from the income loss which is carried forward. But, the trust deed may permit the reclassification of income. So a CG could be converted into income.
But I am unsure if it could work out that the capital gain could be offset by the income loss.
I am not sure what you mean by the last few sentances – with a trust 'you' don't get any tax deductions, the trust does. also not sure about the last one a trust can get the same deductions as a person can.
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
Thanks Terry,
So if the income loss can not be offset against the capital gain and the property is sold the losses are still held in the trust? What can they be offset against?
I suppose by the last few sentences I meant that in the end will the individual beneficiaries get the benefit (by having at some stage less income to declare from the trust) of the tax deductions that the trust makes or in some cases are they just lost.
Best Wishes
Cathyhi Cathy,
I am not an accountant, so cannot be sure, but if there are losses in the trust and these cannot offset the capital gains then the losses would be carried forward to be offset by future income.
But you would need to go about things very carefully as one of the requirements for a valid trust is property. So you would have to keep some property in the trust (maybe even $10) even though it would have a negative balance and negative income.
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
"I suppose by the last few sentences I meant that in the end will the individual beneficiaries get the benefit (by having at some stage less income to declare from the trust) of the tax deductions that the trust makes or in some cases are they just lost."
I agree with you Cathy. Making room for a family legacy project should be an important part of any meaningful inheritance. Recording a family history for generations to come might not have urgent value in terms of monetary currency. However, the dissemination of culture is really priceless.
Article resource: Understanding the true value of a family legacy.
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