Ask Ban Tacs Question
I sign an PoA to my auntie at Auckland NZ at 1995, she set up a bear trust at 2007 and use the PoA without my Knowledge purchase a rental property with my name as trustee register at NZ land title office. rental income has been collected and consumed by auntie .
I did not send any money across to NZ and not back to NZ more then 20 years. Until 2016 I find out this issue and ask the NZ lawyer ( who set up PoA for me at 1995 ), lawyer revoked the PoA and ask me to transfer the property back to auntie’s name , that will be no money change hand.
I am an Australia tax resident and in my year 60.
Question:After the transfer do I have any tax liability with Australia tax office for having a name in a trust from years 2007 until now.
Answer
I am not too sure about the structure of this trust from your question so I will try to cover all possible interpretations. Please take this answer to your solicitor so he or she can read it with the benefit of their understanding of the trust arrangement.
You mention the word bare trust so this tells me the trust has only one beneficiary but I am not sure whether that is you or your Aunt. Now I am assuming you use the word bare trust because the beneficiary is absolutely entitled to the asset held in the trust. So this is an important piece of Australian legislation you need to know about.
INCOME TAX ASSESSMENT ACT 1997 – SECT 106.50
Absolutely entitled beneficiaries
(1) For the purposes of this Part and Part 3-3 (about capital gains and losses) and Subdivision 328-C (What is a small business entity), from just after the time you become absolutely entitled to a * CGT asset as against the trustee of a trust (disregarding any legal disability), the asset is treated as being your asset (instead of being an asset of the trust).
(2) This Part, Part 3-3 and Subdivision 328-C apply, from just after the time you become absolutely entitled to a * CGT asset as against the trustee of a trust (disregarding any legal disability), to an act done in relation to the asset by the trustee as if the act had been done by you (instead of by the trustee).
Example: An individual becomes absolutely entitled to a CGT asset of a trust. The trustee later sells the asset. Any capital gain or loss from the sale is made by the individual, not the trustee.
The next important fact is when it comes to a trust that simply owns a rental property the place of management of the trust is considered to be the country where the property is located even if the trustee is overseas. The country of management is the country with the first bite of the cherry for tax purposes.
If you are simply trustee for a bare trust for you Aunt, that is she is the only one entitled to be a beneficiary of the trust. If you Aunt is an NZ resident for tax purposes then everything is locked into NZ tax law, you need to ask an Accountant over there because you will have responsibilities as trustee.
On the other hand if you are the true beneficiary of the trust then assuming you are here in Australia you need to consider Australian tax law.
If you are only a temporary resident of Australia for tax purposes, for example here under a 457 or 444 visa Australia does not have a right to tax your NZ capital gain or investment income. So again this is totally an issue for NZ tax law.
Again assuming you are the beneficiary of the trust and absolutely entitled to the property. If you are a full resident of Australia for tax purposes it means that the ATO has a right to tax your worldwide income, including capital gains, even though NZ is unlikely to actually tax your capital gain on the property. Note if NZ does tax you then Australia will give you a credit for the tax paid in NZ that you can use to pay your Australian tax on your overseas income.
If you are the beneficiary of the trust then a transfer of the property to your Aunty would be deemed to have taken place at market value, if there is a capital gain it appears that Australia will tax you on it as if you owned the house. I say appears because it all revolves around whether this is really a bare trust with you as the sole beneficiary and I can’t tell you that. Please pass this answer onto your NZ solicitor to get the full picture.
Net Rent:
If over the years the trust has made a profit and it is a bare trust with you as the beneficiary then that income would have been part of your world wide income (even if your Aunty took it) if you are a full Australian resident for tax purposes then you should have been putting that in your past tax returns. If you are only a temporary resident of Australia the net rent is not taxable in Australia but may be in NZ. If your Aunty is the beneficiary then assuming she is a resident of NZ for tax purposes and as the trust is a resident of NZ for tax purposes it is all locked into the NZ tax system but still your responsibility if you are trustee.
Please realise that this advice should not be acted on without consultation with your solicitor and an NZ accountant as I don’t know enough about your circumstances.
