Equity Bank Trust

The strategy involves the gifting of an amount equal to the equity in property to the trustee of a discretionary trust without a transfer of the asset itself, so there is no income tax or stamp duty impact that arises. The Equity Bank Trust takes on the role of a lender and places a second mortgage on your assets, thereby reducing your equity to nil


Advantages of  a Equity Bank Trust

How will this protect the equity in the property?

Using this strategy, the net equity in the property is protected by a registered mortgage. For example, if the property is currently mortgaged to a bank, the trustee will take a second registered mortgage (noting the bank still has priority under its first registered mortgage). If the property is not currently mortgaged, the trustee will take a first registered mortgage.
Either way, the full value of the property at the time the strategy is implemented is protected by registered mortgages.

Does the strategy work for other assets?

Yes, this strategy can be implemented over other personally held assets such as, for example, shares in a private company or motor vehicles. In these circumstances, a security interest in favour of the trustee would be registered against the assets on the Personal Property Securities Register.

How can the strategy be funded?

Given that this strategy is an internal arrangement, sufficient cash may not be available to fund the gift and loan back. In these cases, it is possible to arrange for the parties to use a form of non-cash consideration (e.g. a promissory note).

No CGT or stamp duty on the assets is triggered. Depending on the second mortgage documentation there may be stamp duty on the mortgage document that is a small percentage of what would be the case on the asset.

Advantages of Equity Bank Trust include:

  • that the arrangement achieves broadly ‘next best’ protection for the asset compared with a straight transfer to a protected entity.
  • unlike a straight transfer, as there is no change in the legal ownership of the property from the individual, transfer duty and capital gains tax will generally not apply to the arrangement.
  • other drawbacks with trust ownership such as no access to the CGT main residence exemption and land tax threshold complications associated with acquiring property other than personally will not apply.
  •  the only transaction cost should be a mortgage and PPSR registration fees and professional establishment fees.



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