• Login:
Welcome, Register Here
follow PropertyTalk on facebook follow PropertyTalk on twitter Newsletter follow PropertyTalk on LinkedIn follow PropertyTalk on facebook
Page 1 of 2 1 2 LastLast
Results 1 to 10 of 11
  1. #1

    Default Family Trusts, Ring fences and Bright Line rules

    Hi All
    We had a family home that was owned by the family trust for 10 years and then 3 year ago the trust bought a section and built a new family home. The build was messy with the builders going bust and it was stressful. Eventually we moved into house 2 about 18 months ago while the build was still being complete.
    At the time it was just easier to rent out House 1 (failed to sell) without moving it to a look through company.

    Q1 If we sell House 1 now will the trust need to pay any tax on it since technically the trust owned it for 10 years.i.e. is it subject to bright line rules since it is technically a rental fro the last 18 months?
    Q2 If the rent is just covering the mortgage (breaking even) can the trust just continue to hold the property (in the hope of realising the capital gains later)?
    Q3. If there are minimal losses (given that there is now ring fences) can I just leave them to stock pile in the trust.

    Thank you.

  2. #2
    Join Date
    Feb 2004
    Location
    Wellington
    Posts
    2,806

    Default

    1 No
    2 Yes
    3 Not sure, but I think so Yes

    Cheers
    Spaceman
    Delightfully in need of some Tender Loving Care
    Blessed are those who can give without remembering and take without forgetting
    Some things are not as they seem, nor are they otherwise

  3. #3

    Default

    Ask your accountant. Getting correct advice will cost you one hour's time and potentially save you thousands.
    Free online Property Investment Course from iFindProperty, a residential investment property agency.

  4. #4
    Join Date
    Oct 2013
    Posts
    1,634

    Default

    As Nick has said, talk to your accountant!

    But the short (but not as short as Spaceman's) answers to your questions:

    1) Bright Line timeframes refers to purchase dates, nothing to do with when it was a rental. You've owned it more than 5 years, you're clear of Brightline.
    2) There is no requirement for the trust (or any other entity) to make a profit on the rental. But be aware that if the trust is just barely covering the mortgage, it is probably making a taxable profit, as the principal payments are not deductible.
    3) Yes, losses can stock pile in the trust until property-related profits one day offset them. As the mortgage decreases, this will happen naturally.
    AAT Accounting Services - Property Specialist Accounting - AATAccounting.co.nz
    Lower fees for investors, traders & real estate agents!
    [email protected] for more information.

  5. #5

    Default

    Quote Originally Posted by Anthonyacat View Post
    As Nick has said, talk to your accountant!

    But the short (but not as short as Spaceman's) answers to your questions:

    1) Bright Line timeframes refers to purchase dates, nothing to do with when it was a rental. You've owned it more than 5 years, you're clear of Brightline.
    2) There is no requirement for the trust (or any other entity) to make a profit on the rental. But be aware that if the trust is just barely covering the mortgage, it is probably making a taxable profit, as the principal payments are not deductible.
    3) Yes, losses can stock pile in the trust until property-related profits one day offset them. As the mortgage decreases, this will happen naturally.
    Thanks Guys - this is in line with what the account said to us but had another lawyer (not ours) told me that once I rented out the house in the trust it would have the bright line test applied and I would have to pay tax on it if I sold within 5 years. Maybe I misunderstood them but that did not make sense to me, so thank you again.

    Just to clarify on a different issue am I right in the understanding that bight line and ring fencing does NOT apply to commercial property?

  6. #6
    Join Date
    Oct 2013
    Posts
    1,634

    Default

    Correct. Residential only.

  7. #7
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,625

    Default

    Quote Originally Posted by Jellybean View Post
    Thanks Guys - this is in line with what the account said to us but had another lawyer (not ours) told me that once I rented out the house in the trust it would have the bright line test applied and I would have to pay tax on it if I sold within 5 years. Maybe I misunderstood them but that did not make sense to me, so thank you again.
    Why would you get or take tax advice from a lawyer?
    More Profit from Property? TEACH ME MORE
    Ross Barnett - Coombe Smith Property Accountants
    Proud to give the best property advice for over 13 years.

  8. #8
    Join Date
    Feb 2004
    Location
    Wellington
    Posts
    2,806

    Default

    https://www.google.co.nz/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=2ah UKEwimpMr8n4blAhX573MBHdH6CfQQjRx6BAgBEAQ&url=http s%3A%2F%2Fmemegenerator.net%2Finstance%2F48328526% 2Fnapoleon-dynamite-that-was-a-freakin-sweet-burn&psig=AOvVaw19cYI-EXpIe-lgnktQz8a3&ust=1570403569319242
    Last edited by spaceman; 06-10-2019 at 12:21 PM.
    Delightfully in need of some Tender Loving Care
    Blessed are those who can give without remembering and take without forgetting
    Some things are not as they seem, nor are they otherwise

  9. #9
    Join Date
    Mar 2015
    Location
    Brisbane Wellington Auckland
    Posts
    824

    Default

    Quote Originally Posted by Rosco View Post
    Why would you get or take tax advice from a lawyer?
    It is because tax laws are written by lawyers and interpretation often needs a lawyer.
    Eg using Chapman Tripp (Craig Ellife) for tax interpretation.

  10. #10
    Join Date
    Oct 2013
    Posts
    1,634

    Default

    Quote Originally Posted by Beano View Post
    It is because tax laws are written by lawyers and interpretation often needs a lawyer.
    Eg using Chapman Tripp (Craig Ellife) for tax interpretation.
    Weird. I wrote a post, posted it, then went to edit it and it disappeared.

    Anyway, it was something like:

    Theres a pretty big difference between "a lawyer" and a specialist tax law expert.

    Your everyday lawyer probably knows about as much about tax as I do about law - that is to say, enough to sound intelligent around lay-folk, but certainly not enough to charge for my expertise.

    Tax specialist lawyers likely know a lot more than most accountants. And would certainly be more up to play on any case law.


 

Thread Information

Users Browsing this Thread

There are currently 1 users browsing this thread. (0 members and 1 guests)

Similar Threads

  1. bright line test
    By elliot in forum Finance, legal and tax (NZ)
    Replies: 9
    Last Post: 13-08-2019, 08:10 PM
  2. bright line test
    By elliot in forum Finance, legal and tax (NZ)
    Replies: 0
    Last Post: 29-06-2019, 05:21 PM
  3. Bright Line Test and Tax
    By Purple Property in forum Property Investment (NZ)
    Replies: 13
    Last Post: 04-10-2018, 04:24 PM
  4. trust/bright-line implications
    By alaska in forum Finance, legal and tax (NZ)
    Replies: 6
    Last Post: 15-03-2018, 03:11 PM
  5. New to family trusts
    By Renee29 in forum Finance, legal and tax (NZ)
    Replies: 5
    Last Post: 19-10-2015, 08:34 AM
  6. Trusts On-line
    By cube in forum Finance, legal and tax (NZ)
    Replies: 6
    Last Post: 26-05-2013, 07:49 PM
  7. Okay new Phrase: "bright line" test - what is it ??
    By Bluekiwi in forum Property Investment (NZ)
    Replies: 12
    Last Post: 12-02-2010, 08:20 AM
  8. family trusts being 'targeted by IRD'
    By muppet in forum General (NZ)
    Replies: 0
    Last Post: 21-12-2008, 09:25 AM
  9. Family Trusts
    By Emblaze Pete in forum Finance, legal and tax (NZ)
    Replies: 31
    Last Post: 10-05-2006, 09:20 PM
  10. The next booming area?
    By muppet in forum Property Investment (NZ)
    Replies: 1
    Last Post: 30-11-2003, 11:39 PM

Tags for this Thread

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •