The main residence exemption under the CGT rules cannot generally apply to properties owned by a trust
The main residence exemption can generally only apply when the dwelling is owned by an individual – refer to section 118-110 ITAA 1997. There are some very limited exceptions to this including:
- Where the property is held by a special disability trust.
- Where the property was owned by an individual just before they died and is now held in a deceased estate or testamentary trust, there are some special rules which
can potentially enable the main residence exemption to apply; or
- Where the occupier of the property is absolutely entitled to the property as against the trustee.
A testamentary trust is a trust that is established through a person’s will and takes effect upon their death. It allows the testator (the person making the will) to specify how their assets will be managed and distributed after their passing. Testamentary trusts are commonly used for various purposes, including providing for the financial needs of beneficiaries, protecting assets from potential creditors, and minimizing tax liabilities. These trusts can be highly customizable, and the terms and conditions are typically outlined in the testator’s will, providing detailed instructions on how the trust is to be administered for the benefit of specific beneficiaries.
While you can technically sell a property for $1, several crucial considerations apply. Tax authorities and legal entities typically assess property transactions based on market value, potentially resulting in tax obligations based on the property’s actual worth, despite the nominal sale price. Stamp duty, capital gains tax, and legal and financial implications, particularly if there are existing mortgages or loans, should be thoroughly evaluated.
Changing the property investment structure after purchase is possible but can be complex and may have legal and tax implications such as stamp duty and Capital Gain. Consult with legal and Tax experts before making any changes to your property ownership structure.
In a property investment partnership, two or more individuals or entities pool their resources to purchase and manage a property. Partnerships can have varying structures, and profits and losses are typically distributed according to the partnership agreement.
Trusts offer flexibility in distributing income and can provide tax advantages. For example, discretionary trusts allow income to be distributed among beneficiaries, potentially reducing the overall tax liability. Additionally, trusts are often used for asset protection and estate planning purposes.
Purchasing property through a company can provide limited liability, protecting your personal assets from the property’s debts or legal issues.
Joint tenants and tenants in common are two common ways to co-own property. Joint tenants have an equal share in the property, and if one owner passes away, their share automatically transfers to the surviving joint tenant(s). In contrast, tenants in common can have unequal shares, and if one owner passes away, their share is passed on according to their will or intestacy laws, not necessarily to the co-owners.
Choosing a company or trust structure for your business over a sole trader or partnership offers several advantages. These structures provide limited liability, protecting your personal assets from business debts, making them appealing for risk management. Trusts, particularly discretionary trusts, offer tax efficiency through income distribution among beneficiaries. They also serve well for asset protection and estate planning, allowing for the orderly transfer of assets. Companies, with separate tax rates and perpetual existence, are attractive to investors and convey professionalism, while also facilitating business continuity and scalability. Depending on your specific business goals, legal requirements, and financial situation, consulting with experts such as accountants or legal advisors can help determine the most suitable structure for your needs.