Renting PPOR from family trust.

We are currently selling one of our family trust members PPORs' and investing the funds in a ongoing business.
At some point in the future they will purchase another PPOR.
In the book "Trust Magic" it states that it is possible to purchase property(s) within a family trust structure and family members are able to rent these properties at A fair market rent.
I am interested in the advantages and dis-advantages of this arrangement..................Anyone?

Capital gains tax, no PPOR exemption if bought in trust

Just re-read the relevant section and yes Vicki you are correct,along with the added disadvantage of paying land tax.
The flip side however enables you (the trust),to claim interest,depreciation and repair costs.
Furthermore,if you fully furnish the home,this would mean that the furniture would also be tax deductible.
At the time of printing it is stated that the tax office were looking at unit trusts' owning your home,but,have shown no real interest in family trusts' doing so.
This probably means that negative gearing would not be possible?

Mush said:

The flip side however enables you (the trust),to claim interest,depreciation and repair costs.

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The rent is also taxable income.

Why are you doing this exactly? What risks do you have that you need to put what could be a PPOR into a family trust?

Another question is, is the trust going to both own a business and own property? Generally, it's better to own the passive assets in a separate entity.

Alexlee,I am currently considering this and thought that if I put it out there on the forum then the feedback that I receive will help me make my decision.
Your contribution with regard to the rent received being taxable income and ownership of passive assets being in a separate entity are exactly the kind of input I was hoping for,Thank You.

Advantages
1. Increase asset protection, depending on set up
2. Costs deductible to the trust - negative gearing possible initially
3. Estate planning. Trust assets do not form part of your estate and don't pass via a will


Disadvantages
1. No main residence CGT exemption
2. Rent is taxable income and once postive geared tax may be payable
3. Land tax in some states - where there otherwise wouldn't be
4. set up costs
5. running costs
6. complexity
7 changing laws.
8. Estate Planning - Cannot leave house via your will. e.g. to a testamentary discretionary trust which has greater tax advantages for children

Mush said:

We are currently selling one of our family trust members PPORs' and investing the funds in a ongoing business.v

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Have they sought legal advice on this? There are some legal and tax strategies to assist effeciency and asset protection.

Hi Terry,
I was hoping that you would answer.
Cant say that I still fully understand all the implications,however it appears that renting our family homes (x3) from our family trust is probably not going to be as beneficial to us as I initially thought.
Maybe overkill.
Thank you for your much valued advice.

Mush said:

We are currently selling one of our family trust members PPORs' and investing the funds in a ongoing business.
At some point in the future they will purchase another PPOR.
In the book "Trust Magic" it states that it is possible to purchase property(s) within a family trust structure and family members are able to rent these properties at A fair market rent.
I am interested in the advantages and dis-advantages of this arrangement..................Anyone?

Click to expand...

The ATO views on the Jandmoor Trust decision arent that reliable. You reading an older copy of TM ? I wouldnt use that strategy without a private ruling. I would never give advice to a trustee on that and indicate it works until I applied for and was successful with such a ruling. I would doubt I would get it - It would have that many openings for ATO to knock it back its not worth paper written on.

Mush...The way I see it you have three homes that are all subject to CGT. Who thought that was clever ? Some high risk occupations may make sense but rare.
No such thing as a PPOR if trust owns it. Its not owned by individual, no CGT exemption.

Thanks Paul,that is the final nail in the coffin.
Claiming the negative gearing,interest,maintenance and depreciation on both home and furniture and then renting once property became cash flow positive does appear to be attractive,however,the disadvantages weigh heavily in the opposite direction.
Discarded to the "too hard"basket methinks.

Janmoor was a isolated decision and really set apart from many similiar adverse decisions.

The Janmoor trust also had income from a legit medical services trust arrangement and that was a key factor in the different opinion at that time. The decision in TR2002/18 considers a similar arrangment using a unit trust fails and also addresses Janmoor and this service trust income issue.

Janmoor doesnt say you can just go and use a DT to negative gear a property occupied by a beneficiary. Important anyone considering such practices understand this.

Part IVA is also a key concern that cant be underestimated. Janmoor was a decision prior to Part IVA. Read Para 8 and 9 in the above link.