Can we sell from the Family Trust to an LAQC?

Question from Len Key updated on 5th December 2006:

We recently purchased an investment property and arranged the fiance with the bank through our family trust, only to find that the losses incurred can not come back to us, can we now set up an LAQC and sell from the trust to the LAQC?

Our expert responded:

This question is one that is a bit of a minefield. The first thing IRD will want to know is why you have transferred the property from the trust to the LAQC. If your primary purpose for doing this was to gain a tax benefit, then IRD could rule that it is tax avoidance, which means that the losses will be disallowed and there will be substantial penalties charged to you. If you have some other commercial reason that makes sense, then you might be OK. You would be better off buying another rental property into an LAQC directly. If you sell the original rental property from the trust altogether, there may be a gain and this could be taxable as IRD may argue that you bought the property with the intention of on-selling it. There is also a risk that you may become tainted as a property trader. It is essential that investors consult a tax structuring expert to ensure that they get the right advice as it's costly to try and undo things after the fact, and in some cases, impossible to fix.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer