Tax implications – holding your personal residence inside a family trust
Tuesday, 02 February 2016
Craig Hailston

I recently was asked to provide tax advice to a client as to whether they were entitled to claim the principal place of residence exemption under the Capital Gains Tax [“CGT”] provisions for their personal property held inside their family trust.

This was an interesting conversation at client level to say the least. Over the years we have been asked to provide the same advice to a number of clients, all of which were extremely surprised and somewhat disappointed with the result.

The short (non-technical) answer is no, the exemption will not apply. If a principal place of residence is held inside a trust, then the CGT exemption on any future capital gains will not apply.

The more technical response is that the condition in paragraph 118-110(1)(a) of the ITAA 1997 cannot be satisfied. It provides that a taxpayer must be an individual. Subsection 995-1(1) of the ITAA 1997 defines an individual to mean a natural person.

What did all this mean for the client? It resulted in their personal home becoming subject to tax! Certainly not what they wanted to hear.

Due to the potential tax implications, getting some proper tax and financial advice around this matter would be a good idea.

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