On today’s show, a listener is wondering about a block of units he is building and how he can claim the usual investor deductions while having good asset protection from any litigation.
Ken Raiss from Chan and Naylor answers that question.
Read the transcript here:
Kevin: I’m welcoming back to the show Ken Raiss from Chan and Naylor.
We have a question from Jay: “I’m currently building a block of townhouses on a piece of land that’s in my name. I’d like to avoid having these new units still owned by me in my own name upon completion. What are the costs and processes in transferring these into a trust before the titles are registered? I do plan to keep them and rent them out.”
Ken, over to you.
Ken: Unfortunately, the transfer of title will incur both stamp duty and tax. The level of tax will depend on the period of time since you purchased the land. If you owned the land for more than twelve months since contract exchange, then you can get a 50% reduction in the capital gains tax.
You just have to be careful, of course, that in most states, trusts get treated slightly differently for land tax purposes, compared to individuals. If there are reasons such as asset protection or estate planning that you need to get the properties out of your name and into a trust, then I would be doing it sooner rather than later, when the value of the project is at its lowest. Because stamp duty is based on end value, the ATO would deem the tax between your costs of construction and purchase versus the market value at the date of transfer.
The other thing you have to be careful of, of course, is if you’ve got loans you have to go talk to the bank. They would need to approve it because there is a change of title.
Kevin: The bottom line for Jay is the sooner you do it, the better, and there will be some tax implications along the way, Ken?
Ken: Correct, both tax and stamp duty.
Kevin: Alright, there you go, Jay. Keep those questions coming in, too. You can send them in through the website, and we’ll always have one of our experts answer it, as we did in this case.
Ken Raiss is from Chan and Naylor. Ken, thank you so much for your time.
Ken: Thank you, Kevin, and thanks for that question, Jay.