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  1. #1

    Default Subdividing a Family Trust property

    I've done the GRA recommended RESTRUCTURING and now have the family home in a Family Trust, and 2 IPs in a Company (not a LAQC as I have another company for my 'everyday' business that I can access any property losses through).

    I want to subdivide the family home property, build on the back, and hold and rent out the new house (in Christchurch).

    How should I best structure this development / what vehicle should I do it under to:
    1. Avoid tainting my IP Company as a developer
    2. Be able to hold the new property long term
    3. Separate the new property from the Family Trust
    4. Maximise my profit
    5. Keep everything smelling of roses as far as the IRD is concerned

    Do I need to set up a Trading Trust to do the development?
    I read recently that if your INTENTION at the outset is to 'build and hold as a long term investment' then you are not considered to be a developer. If that is true then could the development be done within the IP company without detriment?
    I'd appreciate any feedback as I don't want to reinvent the wheel.

    Cheers
    Hammond

  2. #2
    Join Date
    Oct 2003
    Posts
    3,578

    Default

    If you are planning on holding onto the new building, I dont think you will be a developer. Others and the IRD may disagree, but I beleive a developer is someone who develops a building to sell for a profit.

    In your situation, i think you are building a house to earn an income stream.

    Therefore it should be ok to hold it in your existing trust.

    CJ

  3. #3
    Join Date
    Jun 2005
    Location
    auckland New Zealand
    Posts
    5,236

    Default

    Hi Hammondo,
    Too serious an issue to get advice here. Talk to Matthew Gilligan, Peter Davidson or your own accountant if you have a good property one. Avoiding tainting is not always easy, especially as you already own the property. As much as it may hurt your pocket, pay for the right advice from a professional!!

  4. #4
    Join Date
    May 2004
    Location
    Bay Of Plenty, NZ
    Posts
    3,604

    Default

    Have done something very similar to this. Our house was in joint names with huge section.

    Subdivided and sold section. Put family house into Trust.

    You don't always have to subdivide!! Go to your local Council and find out if they will allow you to build without subdividing. You will be in exactly the same position (extra dwelling extra income) and will only need to subdivide if/when you decide to sell with dwelling.

    Most Council's have laxer rules when it comes to putting a "family dwelling" at the back of a property, but will leave you in a position that later on you can't subdivide if you want to (subdivision rules will be much tighter). Use the subdivision guidelines to build, but without having to pay the subdivision fees (base fee in my council 7.5% of new section price THEN water/storm/sewerage/community fees on top. Not much change from $15-$20K).

    It means a bit of research but well worth it down the track.

    Also if/when you subdivide later, generally, as an "existing" dwelling (which you've put up using subdivision guidelines) there should be little if any Council objection to the subdivision.

    It really depends on how deep your pockets are now (paying out for subd) or how big your cojones are, to build and subd later.

    Your "D". Good luck.[/u]


 

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