How to own a home in a trust tax-free

Expert Advice with Ken Raiss.

Australia is an entrepreneurial country of more than two million small businesses.

Perhaps it’s our “give it a go” attitude that sees so many of us decide to take control of our financial futures. 

Of course, without small businesses, our economy wouldn’t exist given some 97 per cent of all businesses are classified as ones that employ fewer than 19 staff.

You could be employed in a small business or you’re a small business owner yourself.

The thing is, like with any commercial ventures, there are some complexities that arise when you strike out on your own.

One of the main ones is when it comes to asset protection, especially if your business is an industry that has litigation potential.

Owning a home in a trust

I recently helped a client, Greg, who owned a successful construction business.

While lawyers had never darkened his door, he was still concerned about protecting his assets if one day they unfortunately did.

His main problem was that he didn’t know how to protect his future family home from litigation without losing the main residence concession for Capital Gains Tax.

You see, owning property in a trust for asset protection purposes will usually mean that you lose its tax-free capital gains status as well as creating land tax implications.

Greg intended to renovate the property, given his building skills, and live there for five or more years.

Given the upgrade that would be completed over that time period, he forecast a capital gain of up to $1 million, but was clearly not keen on handing over $200,000 of his sweat equity to the tax department.

The solution

Given his desire to protect the family home from litigation, buying it in either his or his spouse’s name was not advisable.

However, there is a way to own a family property in a trust without kissing goodbye to taxation benefits.

Professional property taxation advisors understand the legislation inside and out, which is why I knew of a solution.

So, the first thing we did was to develop a strategy to protect the property if successfully litigated.

This strategy utilised a specifically worded trust with additional documentation to support Greg’s requirements.

Of course, without professional assistance, there is no way that Greg would have known that this strategy existed.

Then again, I wouldn’t know how to build a house either because I am not a professional in that industry. 

And that’s why I would use the services of someone like Greg to construct a property – otherwise it would probably look like something a two-year-old made from Lego!

I digress, but I’m sure you get my point, which is that using a Main Residence Trust enabled Greg to receive the full benefit of a tax-free future sale of his family home.

He also would not be liable for land tax given the property was classified as his main residence for taxation purposes, while also being in a protected trust environment.

Lessons learned

When Greg came to see me, he was sure there was not much that could be done about his situation because most of the information he found online said so.

However, by seeking professional advice from people who specialise and have a multi-disciplined approach of what you are trying to achieve, we were able to create a successful outcome.

During our time together, we were also able to prepare a strategic plan that looked at a variety of issues – and not just one – because a detailed plan often uncovers more than what was the initially expected.

In Greg’s case, we identified his agreement with his partner was not robust enough in the event of one partner’s death, plus the finance strategy he had adopted did not maximise his interest deductibility on investment debt.

So, it really was a win-win-win situation that ultimately protected his family home from litigation and potentially saved him hundreds of thousands of tax dollars.

What about you?

If you’re a business owner, a professional or an established property investor why not have a chat with me about your personal circumstances.

You deserve your own private wealth advisor to create a Strategic Wealth Plan for your personal needs.

Click here now and find out how Metropole Wealth Advisory could help you.

Having a Strategic Wealth Plan means you're more likely to achieve the financial freedom you deserve desire because we’ll help you:

•    Define your personal, financial and business goals;

•    See whether your goals are realistic, especially for your timeline;

•    Measure your progress towards your goals – whether your investments or business is working for you, or if you’re working for it;

•    Find ways to maximise your wealth creation;

•    Identify risks you hadn’t thought of.

And the real benefit is you’ll be able to grow your wealth faster and more safely than the average investor and leave a legacy.

Click here now, find out more about our range of services at Metropole Wealth Advisory and organise a time for my team and I to formulate a Strategic Wealth Plan for you, your family or your business.

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Ken Raiss is director of Metropole Wealth Advisory and gives independent expert advice for property investors, professionals and business owners. He is passionate about real estate investing and small business and is a regular commentator for Michael Yardney's Property Update.

To read more articles by Ken Raiss, click here

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.