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[ManagementHQ]

changing trustees

Hi Matthew,
Thanks for your previous reply.

I reason for raising the question was when I spoke to the IRD recently they seemed to think that depreciation recovered would be invoked with a change in Trustees, because the owners names on the certificate of title would be change to accommodate a resigning Trustee, and hence an effective change in ownership.

These comments did alarm me because if a Trustee resigned or even passed away, it would create an unexpected tax liability.

Kind regards
Ross

[Matt Gilligan]

Ha ! Good old IRD front line staff.

Hi Matthew,
Thanks for your previous reply.

I reason for raising the question was when I spoke to the IRD recently they seemed to think that depreciation recovered would be invoked with a change in Trustees, because the owners names on the certificate of title would be change to accommodate a resigning Trustee, and hence an effective change in ownership.

These comments did alarm me because if a Trustee resigned or even passed away, it would create an unexpected tax liability.

Kind regards
Ross

Ha ! Good old IRD front line staff.

They will give you advice, but you are not allowed to hold it against them if it is wrong. The only time you can hold it against them is if it is in a binding ruling, - otherwise they have the statutory right to admit they got it wrong but deny liability and prosecute you anyway ! ( No I am not joking.)

Personally I do not ring IRD for advice. While they have some very clever and competent people, its a mixed bag. For lay people talking to them, they can become very confused when they get different or incorrect advice from that of their professional tax advisor.

I am not criticising IRD here - I employ several very competent people ex-IRD and they are great. All organisations have a mixed bag of staff. With tax, you cannot take the risk.

[Matt Gilligan]

Benefits of a family Trust in these circumstances...

Is there any benefit in having a family (or other) trust in these circs:

1. All properties are held in the name of one individual.
2. Likelihood of assets needing protection from creditors is Nil or close to.
3. All assets revert to a single person upon death, and will is current.
4. Taken all together, properties make a small loss, but will be into profit within the next few years.
5. Losses/profits do not need to be shared.
6. Rest home subsidy from the government is not an issue.

Thanks for your time ....

Interesting.

On the face of what you say, it could be said there would be little benefit.

BUT

1 Why are rest home fees not an issue ? What about the next generation ?
2 What about matrimonial property claims being taken against the assets ?
3 When the profits emerge, do you wish to shelter from the higher income tax brackets behind the Trustee tax rate or through income splitting ?
4 What if something bad happens, that you just never saw coming ?


What I would say is I can see very little downside of putting your assets into a Trust ( apart from transfer costs of depreciation recovered and conveyancing costs short run), but lots of potential benefit.

I do not advocate personal ownership of assets. My view is plan for worst case, live for best case. You win both ways.

[artemis]

1 Why are rest home fees not an issue ? What about the next generation ?
2 What about matrimonial property claims being taken against the assets ?
3 When the profits emerge, do you wish to shelter from the higher income tax brackets behind the Trustee tax rate or through income splitting ?
4 What if something bad happens, that you just never saw coming ?

Thanks for the response. To answer your questions:
1. The next generation will be fine, regardless. In any case, I have a philosophical objection to sheltering assets in order to get a government subsidy. Can't help it, that's the way it is.
2. There will be no matrimonial property claim. Been there, done that, not planning on doing it again. (Famous last words?)
3. Tax rates are likely to drop anyway in the next few years.
4. Sure, that is an issue - but there is a lot of equity and some of the properties are highly saleable (and valuable).

I have been over and over this issue and read up what I can. I don't have a trust and wonder if I have missed something.

[essence]

Shares in LAQC

How does one transfer/sell shares in an LAQC to a FT?? Are they sold are market value of property?? Or are they simply transferred.

I don't quite know the correct way to answer this question but I hope Matt can get what I'm getting at!!

Thanks in advance.

[Lizard]

Another question for Matthew

Hi Matthew,
Just incase you are still answering questions!.
We have lived in our family home for 26 years. About 3 years ago we sold it into a family trust where it is 1 year off from being fully gifted.
Our property is about 5/8 of an acre but is land locked by our own house which is perfectly fine.
One possibility I have always considered is buying the house next door when it eventually comes up for sale in order to get access to the rear section.

I also have several buy and hold investments mostly in LAQC's ,one in my name.
What would be the best form to buy the neighbouring property in order to get driveway access. Eventually creating 2-3 decent sections .

What would the best stuctures be in this case?.
Would it be better to sell the land to a developer?

Thanks for your consideration
Liz

[Matt Gilligan]

Moving shares in an LAQC

How does one transfer/sell shares in an LAQC to a FT?? Are they sold are market value of property?? Or are they simply transferred.

I don't quite know the correct way to answer this question but I hope Matt can get what I'm getting at!!

Thanks in advance.

This is a simple process but can have some hidden traps.

I assume the LAQC no longer has tax losses. You wish to move the shares of the company to a Trust for asset protection. If tax is the only reason you are shifting the shares, you could be subject to tax avoidance allegations by IRD. Document your reasons therefore by directors minutes.

You then need to value the shares and sell them at market value to the Trustees, and conduct a gifting programme for teh value of the shares.

The share value will be the difference between market value of the property and the debt in the company, including shareholder loans, plus any subscribed capital value.

Use a sliding value clause in the sale and purchase agreement that says if IRD deem teh value to be different, the deemed value is the transfer consideration, to avoid a deemed gift.

Be aware that when you shift shares, you are deemed to have revoked your LAQC election if the new shareholder is not an elected person to the LAQC regieme. You can elect in again ( the new shareholder) but there is a strict time limit of 63 days from the date of the share transfer.

Also losses to carry forward ( from the current year) are forfeit if you move more than 51% of the company - a very important consideration.

I have a couple more twists, but you will need to call me or email me to get them. I am not going to publish all my IP here.

But this should be a good guide to start you off.

GRA can assist you with the above matters if you wish.

[Matt Gilligan]

Subdivision Considerations

Hi Matthew,
Just incase you are still answering questions!.
We have lived in our family home for 26 years. About 3 years ago we sold it into a family trust where it is 1 year off from being fully gifted.
Our property is about 5/8 of an acre but is land locked by our own house which is perfectly fine.
One possibility I have always considered is buying the house next door when it eventually comes up for sale in order to get access to the rear section.

I also have several buy and hold investments mostly in LAQC's ,one in my name.
What would be the best form to buy the neighbouring property in order to get driveway access. Eventually creating 2-3 decent sections .

What would the best stuctures be in this case?.
Would it be better to sell the land to a developer?

Thanks for your consideration
Liz

The tax and stucturing issues in this question are getting a bit deep for this forum. Sorry. Too many questions need asking to give the right answer, so I chose not to answer.

You are welcome to call me for a free 5 minute chat to discuss if you wish.

One obvious comment commercially however is have you considered picking your house up and moving it to the rear of the site ? Instead of accessing the rear, access the front. Moving a house, repiling, etc is generally about $15-$25k in these circumstances, with services and subdivision on top.

Cheers

[Perry]

An Appreciation

Hhhhhmmmm. Posts at 3.00am in the morrning,
on a Monday. Insomnia, perhaps? Like Muppet,
I thank you for your generous contributions to
PropertyTalk and its members.

Perry
PT Moderator

[Bluekiwi]

Quick Tainting Question Matt

Question applies pre and post 1/4/09.

If you have to sell a property from your Buy to Hold portfolio within 10 years and the IRD deemed your intention was to trade (or you bought it post 1/4/09).

Fine you have to pay tax on the capital gain from that property - fair cop !!

But does this now mean that your other 30 Buy to Hold properties will now be taxed on their capital gains, when you eventually sell.

[Matt Gilligan]

Properties acquired prior to new associated persons rules

Question applies pre and post 1/4/09.

If you have to sell a property from your Buy to Hold portfolio within 10 years and the IRD deemed your intention was to trade (or you bought it post 1/4/09).

Fine you have to pay tax on the capital gain from that property - fair cop !!

But does this now mean that your other 30 Buy to Hold properties will now be taxed on their capital gains, when you eventually sell.

No tainting occurs at time of acquisition.

In your example the 30 properties were were not associated at time of acquisition, and therefore would be non taxable if sold post 1.4.09, even if you were associated after that time.

This assumes IRD do not treat you in the buy to hold entitiy as a dealer, etc for some other reason. Tainting is not an issue at the point you sell, it is an issue at the point you purchase.

[Matt Gilligan]

Advertising

Hhhhhmmmm. Posts at 3.00am in the morrning,
on a Monday. Insomnia, perhaps? Like Muppet,
I thank you for your generous contributions to
PropertyTalk and its members.

Perry
PT Moderator

Insomnia ? No. I am a night owl.

Slowing of the market ? Yes ! Its the first time in several years I have had a break. Its very nice.

[essence]

Hi Matt

Thanks for your answers. Some very interesting points bought up and something that we need to deal with.

[Bluekiwi]

No tainting occurs at time of acquisition.

In your example the 30 properties were were not associated at time of acquisition, and therefore would be non taxable if sold post 1.4.09, even if you were associated after that time.

This assumes IRD do not treat you in the buy to hold entitiy as a dealer, etc for some other reason. Tainting is not an issue at the point you sell, it is an issue at the point you purchase.

Sorry I have to clarify this as it is essential to my strategy.

Assume this all happens Post 1.4.09:
1. I have a Trading Trust set up to "Buy to sell" and I regularly do this post 1.4.09

2. I have a Rental Trust (Or LAQC) that buys 30 "Buy to Hold" properties post 1.4.09

Lets say "Property #5" of my 30 I have to sell within 10 years of purchase due to some left field event.

What happens ?

[Matt Gilligan]

Worked example on thirty properties pre/post 1.4.09

Sorry I have to clarify this as it is essential to my strategy.

Assume this all happens Post 1.4.09:
1. I have a Trading Trust set up to "Buy to sell" and I regularly do this post 1.4.09

2. I have a Rental Trust (Or LAQC) that buys 30 "Buy to Hold" properties post 1.4.09

Lets say "Property #5" of my 30 I have to sell within 10 years of purchase due to some left field event.

What happens ?

Bluekiwi

You have acquired the 30 properties in this example post 1.4.09, so you are associated at time of acquisition ( tainted) by your trading Trust.

Therefore if you sell any of the buy to hold properties within 10 years, and make a profit on them, then you will pay tax on the profits. Hold them 10 years, they will lose their tainted status and be non taxable after that time.

If any of the 30 properties purchased for long term hold were acquired prior to 1.4.09, then assuming you have a two Trust structure and are therefore not tainted prior to 1.4.09, then such properties could be sold post 1.4.09 without tainting affecting the sale.

IRD could still decide you are a serious punter however, and try to allege you are a property trader disguised as an investor in your buy to hold Trust. They may or may not win if you dispute their view - the outcome would be situational on the facts and the law is grey. They are being very aggressive in this area at present - we are seeing some unusual disputes with clients occurring.

For any acquisitions prior to 1.4.09, make sure you you minute the reason for purchase being 'long term investment'.

Cheers