Selling to yourself - GST and Finance

[Bluekiwi]

Okay this is a bit of a question for both accountants and mortgage brokers.

I have a GST Reg Trading Trust and a Rental Trust.
If I buy a house in the Trading Trust and sell it to the Rental Trust in 6 months time how do these 2 things work:

1. How can I set sale price correctly and not pay too much GST - is there a protocol I have to follow and how does it affect me if I do have to sell it at a profit.

2. Since banks generally view lending to the individuals and sort of see through trusts - can I finance from my Rental Trust the property purchase using a RV and not use the S&P because as far as they are concerned I have had the property for 6 months.

I am working on a way to buy property in the Trading Trust and have a go at selling it and making a good profit and paying tax, and if I dont make a premium profit, then moving it on to my Rental Portfolio.

But I dont want it to cause a problem for my Rental Trust.

[Rosco]

Must sell at fair market value between related parties. So normally at valuation.

Your rental Trust is associated to your Trading Trust, so property will still be tainted when in rental Trust. When rental Trust ultimately sells, any capital gain will be taxable. I haven't seen IRD chance this after a reasonable period of time, but technically it will always be a taxable property.

My opinion is that it is always best to keep to original intention. So if you purchased as a trade, do it up and sell it. Often properties purchased as a trade, don't really suit being a long term rental. I personally still have a crappy rental that I orginally purchased as a trade, but couldn't sell so kept as a rental. But it just never seems to be a good rental.

Ross

[Bluekiwi]

Okay so valuation to sell at market value is a problem then.
Although realising a profit - even though some tax is paid - and getting some money out, is not all bad.

The tainting is not an issue as holds kept for more than 10 years.

Buying into a GST entity before moving to a rental trust has some cashflow / financing benefit as well.

I am looking for an easier way to finance more property purchases (flips and holds) as I am coming accross more deals than I can handle at present.

[Rosco]

The tainting is not an issue as holds kept for more than 10 years.
.

Who said anything about 10 years?

This is a trading property, so stays being a trading property (unless sold to an entity that isn't associated).

Basically if your trading entity held for 10 + years then sold, would still be taxable as intention was to sell at a profit. So rental trust (which I presume is associated to trading entity) is exactly the same.

Ross

[Bluekiwi]

Who said anything about 10 years?

This is a trading property, so stays being a trading property (unless sold to an entity that isn't associated).

Basically if your trading entity held for 10 + years then sold, would still be taxable as intention was to sell at a profit. So rental trust (which I presume is associated to trading entity) is exactly the same.

Ross

Okay I just want to get your point straight in my mind.
If I buy in my trading trust, and sell 6 months latter to my rental trust.

The rental trust bought it as rental property without the intention to make a profit.
Holds it for 15 years.

Then sells and pays tax on the capital gain as the previous associated trading trust purchased with the intention to buy and sell as stock and make a profit.

Whereas:

If I buy normally straight into a rental trust, but property is tainted as I have already done trading trust business, and sell this property in 15 years, I dont pay tax on teh capital gains.

[buxlo122]

Whereas:

If I buy normally straight into a rental trust, but property is tainted as I have already done trading trust business, and sell this property in 15 years, I dont pay tax on teh capital gains.

Hey BK this may need rephrasing to make your point clearer.


I think the point Rosco was making before is. The original intention of the property was for trade. A transaction between releated parties does not change this intention. When you eventually sold the property from the rental trust you would have to pay tax on the profit.

[spaceman]

10 years ...15 years isn't a get out of jail free card ......property was bought with intent to resell at a profit ......parties are related ..... tax to pay.

If I buy normally straight into a rental trust, but property is tainted as I have already done trading trust business, and sell this property in 15 years, I dont pay tax on teh capital gains.

.... this would make you evil and a tax cheat ...... how can people like myself legitimately continue not to pay tax if people like yourself start cheating .....shame on you

Cheers
Spaceman

[Bluekiwi]

I am paying 8k in GST and 10k in Trust Tax latter in the year, so I think Spaceman you can consider me a legitimate contributor for the greater good

[spaceman]

Greater good????? pppppfffftftftftftftftf!!!......It's my good I'm worried about ....... if you don't pay the income tax you are obliged to pay and you say that you are trying to weasel out of then where will it all end .......... my kids need new shoes ....pay your taxes, ALL of them not just the ones you feel like.

Or join the dark-side and do your level best to pay zero taxes, just make sure you do pay the tax you have to .....and imho you need to pay income tax on the future sale of that property.

Cheer
Spaceman

[Bluekiwi]

Greater good????? pppppfffftftftftftftftf!!!......It's my good I'm worried about ....... if you don't pay the income tax you are obliged to pay and you say that you are trying to weasel out of then where will it all end .......... my kids need new shoes ....pay your taxes, ALL of them not just the ones you feel like.

Or join the dark-side and do your level best to pay zero taxes, just make sure you do pay the tax you have to .....and imho you need to pay income tax on the future sale of that property.

Cheer
Spaceman

Oh you need me to buy your childrens shoes do you, ever thought of buying them yourself.

[spaceman]

^pish and tosh.... isn't that what you tax-payers are for ....... if you can fence a gang-leaders pool and put new tyres on his car .... the least you can do is pony up for some shoes for my kids.

Cheers
Spaceman

[Cliffy]

Who said anything about 10 years?

This is a trading property, so stays being a trading property (unless sold to an entity that isn't associated).

Basically if your trading entity held for 10 + years then sold, would still be taxable as intention was to sell at a profit. So rental trust (which I presume is associated to trading entity) is exactly the same.

Hi Ross,

So you're saying you can't transfer a trade property to a Buy & Hold?

Even if you sell to a new (B & H) entity at market value - hence the trading entity pays GST and income tax on that sale. You would still be taxed on any eventual sale of the now B & H property?


And what if this property was inherited by your heirs on eventual death. I'm guessing they would be tainted, so would they be taxed on disposal?

[Choice]

GST on rent?

My opinion is that it is always best to keep to original intention. So if you purchased as a trade, do it up and sell it. Often properties purchased as a trade, don't really suit being a long term rental. I personally still have a crappy rental that I orginally purchased as a trade, but couldn't sell so kept as a rental. But it just never seems to be a good rental.

Ross[/QUOTE]

Hi Ross,

Do you need to pay GST on this rental income which is a temporary arrangement until the house sells.