Main Residence Trust & Long Term Lease

A Main Residence Trust is a fully discretionary form of trust, under which an individual is given a limited form of interest sufficient to attract the CGT Main Residence Exemption.

An equitable right of residence is granted from the trust to a beneficiary, which is sufficient to give an interest in the land that will attract the main residence exemption. If the property is sold in the future, the sale can be structured so that the CGT exemption can be applied.

Furthermore, as a fully discretionary form of trust (provided the trust is appropriately structured), no beneficiary can be said to have any interest in the assets of that trust. That means that if any of the persons who are simply beneficiaries suffer financial calamity or are sued personally, the trust assets will not be available to satisfy the debts of that beneficiary.

For main residences that are already owned by a non-individual (i.e. Company or family trust), a long term lease may be a suitable option to formalise the living arrangements and ensure access to the main residence exemption if a sale occurs in the future.

Under a long term lease arrangement, the tenant obtains an “ownership interest” in the residence (as that term is used in the capital gains tax ‘main residence’ exemption legislation). Where properly structured, no CGT should result from entering into such lease.

Upon the sale of the property, the tenant would be entitled to a surrender payment in return for the actual surrender of the tenancy. The payment would be assessable income in the hands of the tenant and provided that the arrangement has been properly structured and administered, would attract the main residence exemption.

The value of the land upon sale, in the hands of the title holder would be reduced by the value of the long term lease to the tenant, to the extent of the market value of the lease, which is reflected in the value of the surrender payment.

Accordingly, the total market value of the interests in the property would be divided between the land value and the lease value. Rent would be nominal so that the long term value of the lease to the tenant would be substantial.

Main Residence Trusts and Long Term Leases can be difficult and complex to setup from a legal and tax perspective. Marsh Tincknell have access to the networks and resources to ensure your trust is set up correctly.

If you are wondering how to setup a main residence trust or wish to discuss the above issues in further detail, please do not hesitate to contact Marsh Tincknell on 07 3422 8000 or info@mtaccountants.com.au

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