Transfer properties from LTC to Family Trust

Question from Ash Dixit updated on 5th April 2022:

Our expert Matthew Gilligan responded:

If you transfer properties from your LTC to a family trust, they will be subject to a new-bright line period in the family trust, which could be the new 10-year period. As things stand, the transfer of property from an LTC to a family trust is a disposal from the perspective of the LTC and an acquisition from perspective of the trust, triggering a restart of the bright-line period. On top of this there may also be a taxable gain triggered from the point of view of the LTC if any of the properties still sit within their initial bright-line period. The moral of the story is that you would want to be very careful about transferring properties out of your LTC.

The same outcome likely arises if you transfer the shares in the LTC. The transfer of shares in an LTC is treated as the same as transferring the properties themselves. Note there is a de minimis provision that involves a complex calculation to determine if a $50,000 threshold is breached. However, the moral of the story here is the same - be very careful about transferring shares in an LTC.

While this is my answer as things stand now, you may be aware of the introduction of new “rollover relief” rules that will allow property to be transferred into trust ownership without triggering the same negative tax consequences. Unfortunately, as that law is currently drafted it does not apply to transfers like you have proposed here. GRA has submitted on the draft legislation suggesting that it should broadened to cover these scenarios, so hopefully in the future if you ask me the same question I will be able to provide a different (better) answer.

Matthew heads GRA's specialist property and asset planning division. He helps clients create optimal tax structures and build wealth through property. He has an extensive buy-to-hold property portfolio, is currently involved in over a dozen developments, and is author of two books - Property 101 and Tax Structures 101.

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