Hi guys
My wife and I are in the process of purchasing a second investment property in the name of our Trust (with corporate trustee) and it Settles in a week. This one is interesting as it is actually 2 Titles, with a house on one Title and a large colorbond shed on the second Title. The whole yard is fenced as just one property and the Contract, let?s say the purchase price is $170,000, is for the whole lot. As part of the loan application process a valuer has come out and agreed that there is enough value in the whole lot to cover the, say $150,000 loan (at this stage of the process they never value it above the purchase price!)
After Settlement I plan to move the fence line to physically separate the two Titles and immediately list the Title that has the shed on it for sale in an attempt to get my hands on some cash (instead of getting my hands on some equity if I was to keep & build instead). The Trust is buying the whole lot for say $170,000 and lets assume that the land with the shed will clear $50,000 once agents fees are taken out. I believe that the Title with house will have no problem being revalued in its own right at the same $170,000 so from a bank security point of view I don?t think that the bank will have any issue releasing the $50,000 proceeds of the shed Title sale to the Trust ? I would be keen to receive any advise on the do?s and don?ts of this process though!
Wondering what happens from here though as I have not had the Trust make any profit on paper before and I have no CGT experience?
Let?s say that the Trust already has a previous carried forward loss of $10,000. Also that I am the primary wage earner so the Trust is likely to disperse any gains primarily to my wife so that we pay less income tax overall.
? How do I work out if the Trust has to pay CGT?
? Do I need to get the land Title valued separately to the house Title just after Settlement so I have a formal starting value?
? If I sell over this valuation is the difference then liable for CGT (minus a portion of the appropriate legal costs incurred to purchase the whole thing, e.g. a portion (50/170??) of the stamp duty)?
? If I sell under this value can the Trust claim a Loss?
? If I sell within a certain quick time frame after Settlement is it CGT exempt as not feasible that it has really increased in value?
? If I sell after 6 months is there a 50% reduction in the CGT?
? What considerations are there in regards to when I time the sale of the land? If worthwhile I am happy to sit on it for X months if there is a step change in the CGT payable.
In good news I have already secured a tenant who doesn?t mind that the land with shed will be sold off and the rent is enough to make things positively geared with no need to use the proceeds from the land sale to pay down debt on the house Title (which I understand is the usual ?splitter? strategy plus I have no subdivision costs as already on 2 separate Titles.)
If anyone has any strong opinions on why I should not sell the Land but actually build instead, to either keep or sell, then I am open to your advice. I am strongly a buy and hold style investor but in this case I am keen to cash out the land to use the money for personal use. I think building would be a bit of a headache and I?m not sure I would make more than $50k profit anyway due to high cost of building and low values of finished homes in this regional town.
Does anyone have any advice on how the CGT and Trust considerations would play out?? I want to optimise the situation so that the most $$ comes through the Trust to us but have no experience in this situation.
My wife and I are in the process of purchasing a second investment property in the name of our Trust (with corporate trustee) and it Settles in a week. This one is interesting as it is actually 2 Titles, with a house on one Title and a large colorbond shed on the second Title. The whole yard is fenced as just one property and the Contract, let?s say the purchase price is $170,000, is for the whole lot. As part of the loan application process a valuer has come out and agreed that there is enough value in the whole lot to cover the, say $150,000 loan (at this stage of the process they never value it above the purchase price!)
After Settlement I plan to move the fence line to physically separate the two Titles and immediately list the Title that has the shed on it for sale in an attempt to get my hands on some cash (instead of getting my hands on some equity if I was to keep & build instead). The Trust is buying the whole lot for say $170,000 and lets assume that the land with the shed will clear $50,000 once agents fees are taken out. I believe that the Title with house will have no problem being revalued in its own right at the same $170,000 so from a bank security point of view I don?t think that the bank will have any issue releasing the $50,000 proceeds of the shed Title sale to the Trust ? I would be keen to receive any advise on the do?s and don?ts of this process though!
Wondering what happens from here though as I have not had the Trust make any profit on paper before and I have no CGT experience?
Let?s say that the Trust already has a previous carried forward loss of $10,000. Also that I am the primary wage earner so the Trust is likely to disperse any gains primarily to my wife so that we pay less income tax overall.
? How do I work out if the Trust has to pay CGT?
? Do I need to get the land Title valued separately to the house Title just after Settlement so I have a formal starting value?
? If I sell over this valuation is the difference then liable for CGT (minus a portion of the appropriate legal costs incurred to purchase the whole thing, e.g. a portion (50/170??) of the stamp duty)?
? If I sell under this value can the Trust claim a Loss?
? If I sell within a certain quick time frame after Settlement is it CGT exempt as not feasible that it has really increased in value?
? If I sell after 6 months is there a 50% reduction in the CGT?
? What considerations are there in regards to when I time the sale of the land? If worthwhile I am happy to sit on it for X months if there is a step change in the CGT payable.
In good news I have already secured a tenant who doesn?t mind that the land with shed will be sold off and the rent is enough to make things positively geared with no need to use the proceeds from the land sale to pay down debt on the house Title (which I understand is the usual ?splitter? strategy plus I have no subdivision costs as already on 2 separate Titles.)
If anyone has any strong opinions on why I should not sell the Land but actually build instead, to either keep or sell, then I am open to your advice. I am strongly a buy and hold style investor but in this case I am keen to cash out the land to use the money for personal use. I think building would be a bit of a headache and I?m not sure I would make more than $50k profit anyway due to high cost of building and low values of finished homes in this regional town.
Does anyone have any advice on how the CGT and Trust considerations would play out?? I want to optimise the situation so that the most $$ comes through the Trust to us but have no experience in this situation.