How to avoid CGT when buying a home for your child

3IX37

anne 发表于 2013-11-27 05:18
I don't think ATO would go down that path, George would easily argue that the right given away is  ...

Yeah, you are absolutely right and that is exactly what LZ summarised in #25 that George would either have a capital gain under A1 or C2 without formally setting up a trust. No escape here.

Furthermore, it is both equally arguable that for C2 the underlying CGT asset is the right to receive sale proceeds and/or it is the right to receive the net sale gain. This is a very valid point. we can't be sure until when there is case law for it.

3IX37

anne 发表于 2013-11-27 05:18
I don't think ATO would go down that path, George would easily argue that the right given away is  ...

Yes, you are also right about ATO would not and could not go that far to apply C2. It is because under s.102-25 , while there are multiple CGT events, one should only apply the most specific event, with few exceptions. A1 is most likely to be the more specific to C2 in most of time.

In summary for Gerbic case, which i pointed out earlier, Gerbic's contention has 2 vital shortcomings.

1) George failed to realise that merely holding something on trust for someone else is not a TRUST.  
George contended that he was holding the property on trust for his son Justin and his son was the natural person dwelling in the house.
AAT dismissed it based on merely holding something on trust for someone else does not constitute a TRUST for s.106-50 to apply. Without a trust deed and other supporting facts, AAT dismissed George's contention without a need to exam his contention.

2) George also failed to realise that there are other CGT events need to be considered.
Without considering s.106-50 implication, even if like what George intended that he was holding the house on trust for his son, his son was the actual occupier, all sale proceeds should be attributable to Justin, there would then be a C2 implication even where there were no A1 to himself, which i explained in the earlier posts.

After all one can make a capital gain or loss if and only if there is a CGT event (s.102-20), and Div 104 lists 53 CGT events, they in theory should be all be tested and analysed and the most specific event should be selected (s.102-25), if any, before one could conclude there is no capital gain or loss.  

George Gerbic didn't even stand a chance for his case.

anne

3IX37 发表于 2013-11-27 09:29
Yes, you are right. ATO would not and could not go that far to apply C2. It is because under s.102 ...

Thanks for sharing you thoughts on the case.

George might not even think about it before he got himself into this, but he is still a GOOD dad, isn't he?

There is an old Chinese saying, "Preparedness ensures success, unpreparedness only spells failure".

3IX37

anne 发表于 2013-11-27 08:49
Thanks for sharing you thoughts on the case.

George might not even think about it before he got h ...

a good dad indeed, a smart one? questionable perhaps a bit too smart for his own good He really should have sought a professional opinion on his planning.

Always, measure twice and cut once.

maplefire

too good too long discussion to follow...

3IX37

miao123 发表于 2013-11-25 14:10
My view still remains the same. If there is alreay a trust in place, the benefits from trust asset ...

During one of my on-job researches, i came cross the most recent leading trust case "Oswal v Commissioner of Taxation [2013]", which i would like to share with you.
In this case there is not much relevance in respect to our discussion, except for the "absolutely entitlement".  In Oswal case the Federal Court referred Judge Lindgren J’s approach in Kafataris case, which enunciated that there is no absolute entitlement for a beneficiary if the trustee holds the power of disposition over trust asset (para76, Oswal case).

As a result, George would never be able to successfully contend that his son Justin was absolutely entitled to the house, while himself still retained the power of sale, even when there had been a trust deed in place.

In addition, there are all sort of CGT events potential could be triggered, for instance:

B1, use and enjoyment before title pass
E1, create a trust over a CGT asset
E5, beneficiary becoming entitled to a trust asset,
E7, Disposal to beneficiary to end capital interest (potentially)
F1, granting a lease
F2, Granting a long term lease

as well as the 2 residual events
D1, create a contractual, legal or equitable right in another entity, and
H2, an act or transaction or event occurs relation to your CGT asset and not resulting cost adjustment. (this is catch all event)

With respect in my humble opinion, setting up a trust would only over-complicate things even more. The best approach is just as plain simple as lending money to his son or writing a registered mortgage to him, so Justin would still be able claim main resident exemption.

http://www.austlii.edu.au/au/cases/cth/federal_ct/2013/745.html

miao123

3IX37 发表于 2013-12-3 15:29
During one of my on-job researches, i came cross the most recent leading trust case "Oswal v Commi ...

The attached document is a good article to help you understand CGT event E1. There are two scenarios where E1 does not happen. First, it is a bare trust in which a taxpayer who creates the trust is the sole beneficiary of the trust. The second exemption is where trust contains a valid exercise of a power within trust’s constituent document. In general, trust law is very complicated but if you thoroughly think of all different circumstances before a trust is structured, it should help to save some tax. In order to succeed, you must have vast knowledge and understanding on trust.  

3IX37

miao123 发表于 2013-12-3 16:04
The attached document is a good article to help you understand CGT event E1. There are two scenari ...

Yes, you are right, I am well aware of this exception provision s.104-55(5), which i don'y think you quite fully appreciate it. The provision stars with if "you are the sole beneficiary" and "absolutely entitled". Please note here "you" is the entity creates a trust.
In our discussion, is the trustee and the beneficiary are not the same "you". Do you still think George would still get the benefit of s.104-55(5)?
Furthermore, isn't there another subsection "and it is a unit trust"? the bare trust you mentioned earlier is a unit trust i presume, but is the trust you mentioned earlier a type of bare trust that the taxpayer is the trustee of a unit trust and he is also the sole beneficiary?

Overall, the key question is whether Justin would be absolutely entitled to the house, while George still retains his power of sale.

By the way, thanks for sharing the material. But I would recommend to read case as well as revisit Part 3-1. :) that might be helpful too :)

Trust me, Oswal case is worth of reading. it would give you another level of understanding of CGT in trust, especially E1, if that is the preferred topic.

miao123

3IX37 发表于 2013-12-3 22:16
Yes, you are right, I am well aware of this exception provision s.104-55(5), which i don'y think y ...

You are right, I have not fully comprehend the case yet. But 拜托，I am very busy and do not have so much time like you do. Just give me more time to read and I will feedback you with my interpretation.

miao123

3IX37 发表于 2013-12-3 22:16
Yes, you are right, I am well aware of this exception provision s.104-55(5), which i don'y think y ...

By the way, you are even better than some tax professional. Good on you.

tiluil

mark

3IX37

miao123 发表于 2013-12-3 23:05
You are right, I have not fully comprehend the case yet. But 拜托，I am very busy and do not have  ...

If you knew me personally, you would appreciate how busy i am. I started 7:00, just got a chance to have my first coffee now.

you probably notised that i don't usually reply post but those interesting ones, like yours.