CGT on Main Residence when land over 2 Hectares

I had a client recently who was selling this main residence. He was shocked when I told him it would not be fully CGT exempt as it was about 8 acres in size.

The main residence CGT only applies to a dwelling on land of up to 2 hectares in size. So when the land is larger than 2 hectares only part of the property will qualify for the main residence exemption.

See s118-120(3) ITAA97.

Note that the 2 hectares can be selected on the most valuable parts of the land which need to be adjacent to each other. For example you might have the land under the house on one side and the land under a shed way down the back, but not count the land in between them.

See TD 1999/67

Which includes this diagram:

See the discussion at:

Written by Terryw tax lawyer at

Consider Risk of Surviving Spouse Controlling All on your assets at Death

Where there are 2 spouses and children if one of the spouses dies and the other inherits the assets of the deceased this can pose a risk to the children.


Marge and Homer own about $2mil worth of assets – some joint some separately but roughly equal. So that is $1mil net worth each.

They have 3 children, but in their wills everything goes to the surviving spouse, if still alive and if not to the children.

This means if Homer dies Marge will inherit the full $1mil that he owned. But if Homer and Marge die together the children will inherit all of the $2mil in equal shares. What could happen if Marge inherits the $1mil and not the kids?

What’s the risk?

If Homer dies Marge could

  1. Remarry

See my post on this

Legal Tip 197: Consider the remarriage Risk when doing a Will
  • Spend it, or
  • Waste it, or
  • Lose it

For example, Marge might

  • change when single and dramatically increase her spending on herself and others.
  • She might start making donations to dubious causes and
  • she might invest it in Barney’s development project which fails causing her to lose the lot.
  • She might be bad at money management,
  • so could fight with the kids and change her will,
  • a flatmate could claim to be a spouse and make a family provision claim (has happened).

One potential solution

Leave your share of your assets to either

  1. The children directly, or even better
  2. To one or more testamentary trusts TDT.

This way the surviving spouse still has their share of the original assets and the children have access to their share. You can structure the TDT in many ways including

  1. Giving the children complete control,
  2. Putting control in the hands of the surviving spouse,
  3. Putting the control in the hands of someone else,
  4. Making the spouse as a discretionary beneficiary, or excluding them,
  5. Limiting access to the capital of the trust,
  6. Etc etc.

Where the main residence is jointly owned, this could either

  1. Be left to the surviving spouse, or
  2. Be left to the TDT with the surviving spouse being given a right to reside so that they cannot be forced out (and this may have CGT and land tax benefits),
  3. Have the option of doing either of the above.

Seek legal advice on what you could do in your specific circumstances.

Discussion at:

Written by Terryw Solicitor at Structuring Lawyers Pty Ltd

Transferring a Property from a Testamentary Trust to a Beneficiary Without CGT

Trusts are generally considered the greatest British invention, (the sandwich comes in second), and Testamentary Discretionary Trusts (TDTs) are the best of the best.

The main benefit of a TDT is the ability to get income into the hands of children and have them taxed as adults.

Another main benefit of TDTs is the ability to transfer a property owned by the trustee of the trust to that of a beneficiary of the trust without triggering CGT. This means an inspecie transfer of assets is possible without CGT.


Homer dies and leaves his property portfolio indirectly to his children by establishing 3 separate TDTs in his will. Bart’s trust will hold 3 properties, as will 2 more trusts controlled by Bart’s sisters.

Bart has 5 children, so is able to distribute the $100,000 in rental income to the children tax free each year.

After a while the kids grow up and start working so any further distributions will result in tax being payable at high rates. Bart decides to reduce the tax by moving into the most expensive property and living there rent free. Then he realises that the property is subject to CGT as it is held by a trustee and the main residence exemption won’t apply.

Bart decides to use the ATO’s concession and transfer the property from the trustee to himself as a beneficiary under the will.

He gets a private ruling first and this confirms the Commissioner will not treat this as a disposal for CGT purposes because it is a transfer from a deceased estate to a beneficiary.

Note however that this is not law, but a concessional treatment by the Commissioner as stated in Paragraph 2 of PS LA 2003/12

“… the Commissioner will not depart from the ATO’s long-standing administrative practice of treating the trustee of a testamentary trust in the same way that a legal personal representative is treated for the purposes of Division 128 of the ITAA 1997, in particular subsection 128-15(3).”

See also PBR 99991231235958 – Questions 1 and 2

also PBR 1012603789935

Discuss at

Fee-HELP and Deductibility of Course Fees

If you are studying a course relating to your current employment and you defer payment of the fees by using Fee-HELP will the fees still be deductible even though you do not pay it upfront?


ATO ID 2005/26 states:

“Even though the taxpayer has obtained a loan for all or part of the fees for the course under FEE-HELP, this does not preclude the taxpayer from claiming a deduction for the expenses incurred in relation to the course.”


Bart is a registered tax agent and is doing a Masters in Tax course and decides to use Fee-HELP to defer payment of the course because he is low on funds at the moment. So he enrols and incurs the debt of $10,000 for his subjects. He can claim a $10,000 deduction, save about $3,000 in tax, and not have to directly pay for the course until many years later when his taxable income rises above the repayment threshold – which is $51,957 in the 2018-19 tax year.


ATO ID 2005/26

See also these recent private rulings:

Authorisation Number: 1051472588169

Authorisation Number: 1051479369722

Authorisation Number: 1051479812479

Authorisation Number: 5010056303358

Discuss at

How much can be earned without having to pay tax?

For the 2018 to 2019 tax year the tax free threshold for resident taxpayer individuals is $18,200 per year in taxable income. That means earning under this amount results in no income tax payable.

However, a taxpayer could earn slightly more than this and pay no tax because of 2 rebates that are available:

  • The Low Income Tax Offset of $445, and
  • The Low Mid Income Tax Offset of $255.

This means that an individual resident individual could actually earn $21,885 per year and not have to pay tax.

However, if the individual is eligible for the Seniors and Pensioners Tax Offset (SAPTO) they could potentially earn up to $33,000 per year and not have to pay tax.

Check out the calcs at and

Discuss at:

Discretionary Trusts distributing income to a SMSF and Tax

We have seen that it can be possible for a discretionary trust to distribute income to a SMSF if the SMSF is a beneficiary of the trust. See my legal tip

But just because it can be done doesn’t mean it should be done.

Any distribution from a related discretionary trust received by a SMSF will be classed as NALI or ‘Non Arms Length Income’.

NALI income will be taxed in a SMSF at the highest marginal tax rate.

Income from Fixed Trusts to a SMSF can be taxed at normal SMSF rates, 15% generally, but only where the income is genuine non-NALI income. For example a SMSF owning units in a Fixed Unit Trust which owns a factory. Genuine rent can flow through to the SMSF and be taxed at 15%. But if a discretionary trust distributes income to the unit trust this would flow through to the SMSF but be taxed at the top marginal tax rate.

The reasons for these laws are to stop people diverting income to SMSFs to save tax.

Discuss this at

Can a Discretionary Trust Distribute Income to a SMSF

A SMSF is a trust and a discretionary trust could potentially distribute to another trust. But, the Trustee of a Discretionary Trust can only distribute income to beneficiaries of that trust if the SMSF meets the definition of beneficiary as defined in the deed. If the SMSF is a beneficiary of the discretionary trust then it would be possible for it to receive income and/or capital from the discretionary trust.

BUT (and there is always a but) – just because it could be done doesn’t mean it should be done. See my tax tip for some of the tax consequences.

Discuss this topic at

How long can Tax Losses be carried forward?

There is no time limit as to how long you can carry forward losses – whether income losses or capital losses, however they will be lost at death (a loss lost!). So, it makes sense that you should try to use up losses as early as possible. This is generally not too hard with income losses as these are easily eaten up the next financial year with more income being earned.

Using up capital losses tends to be more difficult though as a capital loss can only be used up by a capital gain – not general income.

Note that there are complex rules regarding companies and trusts in carrying forward losses.


Homer invested money in a business he ran which failed. He lost $200,000 and has a $200,000 capital loss which he has been carrying forward for 9 years now. Homer would love to use this loss up, but the trouble is he has no other asset he could sell to offset the loss.

If Homer owned shares for example he could sell shares with a $200,000 capital gain and not have to pay any tax.

But losing his money has meant that Homer doesn’t have any capital to invest with.

However, Homer’s daughter Lisa knows a thing or 2 so sets up a discretionary trust to hold investments. It could be possible that in future a gain from the trust could be distributed to Homer and his loss could offset this so that no tax is payable.

Discuss this topic here

Consider the remarriage Risk when doing a Will

When one spouse dies often the surviving spouse remarries. This will mean any inheritance received by the surviving spouse could be at risk of not ending up in the children’s hands.


Homer and Marge are happily married and have 3 kids, they prepare their wills so that if one dies the survivor gets everything, if they both die the kids share everything equally. Sounds good so far.

Homer dies.

Marge inherits Homer’s assets which were 50% of the main residence, 50% of the investment property and 425 pens stolen from his employer over the years.

So far all is well.

A year after Homer’s death Marge gets on tinder and eventually marries a guy called Barney.

Marge’s will is now revoked by the marriage, marge dies and under the intestacy laws of NSW the assets of Marge get shared by Barney and the kids.

Even if Marge didn’t marry Barney, he might still be able to take a share because he is a de facto spouse. If the will was in place still, he could make a family provision claim. There is also the possibility that Marge will knowingly prepare a new will and leave Barney something – or everything.

So, when making a will consider that your spouse could enter a new relationship after your death and plan for it. Assume it will happen.

For a Discussion go to:

Multiple Bucket Companies as an Estate Planning Strategy

A Bucket company is a company set up to receive profits from another entity – usually a discretionary trust. The bucket company usually does nothing else, except receive money and make loans or directly invest perhaps. Over time the value of the bucket company will rise as money is coming in but not going out. Therefore, it will become increasingly important to consider in regards to estate planning and asset protection.

One estate planning strategy is to set up one separate bucket company for each child so that when the controller of the companies dies each company’s control can be passed on rather than having multiple people inherit the control of one company.


Homer has 3 kids. He wants to leave them approximately the same amount of his assets 1/3.

Homer has decided to set up a discretionary trust to use to invest in shares. He seeks legal advice on the difficulties with leaving the control of the trust to more than one person so has that covered. But after a while the dividends of the share investments are building up so Homer sets up 3 bucket companies with 3 separate discretionary trusts with one trust holding the shares in each bucket company.

When the dividends come in, he causes the trustee of the share trust to distribute 1/3 to each company. Over a period of time the companies end up with large amounts of retained earnings which and then lent back to the share trust.

Homer dies.

Each of the bucket companies is then passed to each child – actually nothing is passed but the control of the bucket companies is arranged so that Child A controls Trust A and Bucket Company A.

This way things will be easy to divide. There is no more than one child involved in one company so if they want to cause the company to make loans, invest, pay dividends or close down they can do so without the need to effect or even consult with their siblings.

For a Discussion go to:

No attorney but Capacity already lost?

What do you do when a family member has lost capacity but there is no power of attorney appointment in place?


Dad died a while back and mum is in hospital and it looks like she has dementia and needs full time care. You, the son or daughter, need to get mum’s property sold so you can raise the funds to help cover the care needed.

You go to mum’s lawyers wanting to sell mum’s property but they point out the obvious – it is not you property to sell so you cannot enter into a contract on your mum’s behalf and you cannot sign the transfer. Is there an enduring Power of Attorney they ask? The law firm indicates they recommended one to your mother years ago (is this a breach of client confidentiality?) but she did not do one – through that firm anyway.

Later you look through all mum’s papers – there is stuff everywhere – but you cannot find any power of attorney appointments. What do you do?

The only option may be to make an application to the Guardianship Tribunal, if in NSW, to ask to be appointed as mum’s financial manager (NSW). This will take time, money and stress to do.

Something similar could happen between spouses too.

Going to the tribunal or courts to be appointed an attorney or financial guardian is best avoided if possible because

  1. Complexity
  2. Cost
  3. Time, and
  4. Multiple people could apply in opposition to each other.

Making a POA when you don’t need one will be quick, easy and cheap. This is like insurance. You don’t need it until you need it and by then it is too late to get it.!

Tip: Appoint an attorney before you need one as once you do need one it will be too late.

Discussion at:

Declarations of Trust and CGT

I have outlined what a declaration of trust is here .

What are the CGT consequences of a person declaring that they now hold an asset as trustee? There is no change in title, so most people probably think there are no tax consequences, but there are.

CGT Event E1 (section 104-55(1) ITAA97) happens when someone declares a trust over existing property they own. This is because there is a change of beneficial ownership, even though the legal ownership remains the same.


Homer holds 100 shares in CBA. He makes a declaration of trust that he now holds these shares on trust under the terms of the Simpson Family Trust deed. No change of ownership has happened, but this has triggered CGT just as if there was a sale of those shares to a 3rd party. If the cost base of the shares was $100,000 and the market value is now $200,000 that would mean a $100,000 capital gain is made (which may then get the 50% CGT discount etc).

(Homer should have sought legal advice as there are ‘better’ ways of doing this)

Declaration of Trust

A declaration of trust happens when the legal owner of an asset declares that they now hold that asset on trust for another person or persons.

A more technical definition is found in legislation, for example in section 8(3) of the Duties Act 1997 NSW which has:

“declaration of trust” means any declaration (other than by a will or testamentary instrument) that any identified property vested or to be vested in the person making the declaration is or is to be held in trust for the person or persons, or the purpose or purposes, mentioned in the declaration although the beneficial owner of the property, or the person entitled to appoint the property, may not have joined in or assented to the declaration.


Homer owns 123 Smith Street. He is the legal and beneficial owner. One day he decides he wants to begin holding that property but for the benefit of his son Bart. Homer makes a declaration of trust that from this day forward he holds the property as trustee for Bart.

Homer is still the legal owner, but now Bart is the beneficial owner of the property. If Homer goes bankrupt the property is, at face value, not his property and not available to creditors (but…). If Homer dies this property is not one that can pass via his will. If the property is rented out the income will be taxed in the hands of Bart etc.

There are also various tax and duty consequences to making a declaration of trust and I will cover these in a future post.

Tax on Trust Income not Distributed

Where a trust has income and no one is presently entitled to it, the trustee of the trust will be taxed on this income at the top marginal tax rate because of s99A(4) ITAA36

Note that the income doesn’t necessarily need to be distributed, it could be retained by the trust yet still be taxed in the hands of the beneficiary if they have been made presently entitled to it.

On present entitlements and trusts see this post I wrote a few years ago:

Legal Tip 87: Trusts and Unpaid Present Entitlements  


Simpson family trust has $10,000 in income in year 1. The trustee makes Bart presently entitled to the income so Bart is the one that is taxed on this income. The trustee may not physical transfer the money, but if the is the case Bart will still be taxed (and he will have an unpaid present entitlement with the trust, which is similar to a loan). Bart has no other income and pays no tax.

In year 2 the trust has $10,000 in income, but the trustee doesn’t make anyone presently entitled – perhaps they forgot, or perhaps their resolutions were defective.

The trustee will pay the tax at the top tax 47%