Looking for some good advice!
I will be subdividing my PPOR remaining in residence in the front house and building another house at the rear for investment or sale (undecided).
I currently have a mortgage of 200K over the existing house and entire parcel of land.
As I may hold on to the rear property for some time I am investigating ways of realizing the value of the rear block and using this to reduce the 200K mortgage.
I am wondering if I can/should set up a company that buys the land from myself at valuation price (175K) and use this to reduce the mortgage?
The company would need to take a new mortgage to buy the land and to build the house, all up 400K.
Key questions that will determine the direction I take are as follows:
If I set up the company in which I am the director of can I pay the 175K into my first mortgage and the company still make deductions on interest.
Or are these/any deductionds ( losses) only able to offset any gains the company makes not myself as an individual.
If the company chooses to sell the investment can I expect a company tax rate would apply to the gain, am I correct in saying 30%? Does a concessional rate apply to the property if the company owns it for more than 12 months?
I would like to hold the property for long term gains with the value of the land in my pocket not as equity in an investment.
Many Thanks.
Firstly don’t forget trusts. Companies are generally not used to buy property.
If you setup a trust it can buy the back block, maybe for $200,000. The proceeds could then wipe out the remaining mortgage.
The trust will be able to claim the itnerest on the full loan (for tbe back property).
If you use a company, you cannot personally claim any deductions. It may be possible by using a hybrid discretionary trust.
Companies don’t off any asset protection and they do not qualify for the 50% CGT reduction after 12 months. Trusts do.
I am not an accountant, so please get some property advice before acting.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
What about the downside with Trusts? Losses are not carried forward and any profits must be disbursed. Is that not the case?
This is certainly not my field but I use both a company and a Trust.
The Mortgage Adviser
http://www.themortgageadviser.com.au
[email protected]
Essential LinksI would suggest you get a qualified accountant to look at it for you. It is important that you get your structure right, as the wrong structure can cost you more than an accountant will charge. To make sure you have the right accountant to advise you, ask questions about their experience in structuring. Not only do you want to minimise tax, but also protect your assets. Does anyone have any suggestions of a good advisor for gershall??
I have heard Hybrid Discretionary trusts are useful if you think you may have some losses, as you can transfer them out to the beneficiaries in the year incurred (not certain) – Anyone else????
If you buy it in the company you will not get any concessions on sale – the whole gain will be taxed at 30%.
Once again though – check this out with a qualified advisor.
Cheers
JulesThanks for the responces.
I have done some further investigations based upon the points the 3 kind members have raised.
http://users.bigpond.net.au/renton/trc.htm
This site answers some questions re: trusts.
“”Q. I am looking into setting up a trust to hold some investments, which will be negatively geared. I have become aware of a hybrid discretionary trust structure that some property investors are using to hold negatively geared property, which gives them the tax and non-tax advantages of family trusts.
A hybrid trust seems to be a combination of a discretionary and a unit trust. Have you any advice in regard to the advantages and disadvantages of using a hybrid trust in this context?
A. A hybrid trust is a trust which is non-discretionary for some capital and/or some income and discretionary for the balance.
However, the tax features of negative gearing do not depend on the type of trust. They do depend on the total trust portfolio, as trust losses cannot be distributed to beneficiaries. Thus unless there are other trust assets generating sufficient profits the net losses can only be carried forward.
In regard to the more general matter: In the absence of special circumstances, a discretionary trust, with its complete flexibility, would normally be more useful than a wholly or partly unitised trust.””
Thinking i have a better understanding now. It seems as i have no other properties in the trust that would be generating income to offset losses it would be better if the amount borrowed for the house and land generated losses equal to the gains.
Cant see many advantages if i hold the property, though if i sell it soon after completion the trust could borrow the full amount, and the interest costs could be offset against any gains. I could distribute the gains at my discretion.
Time to call the accountant!!
Actually Renton may not understand how Hybrids work going by that quote. It is true that losses cannot be distributed, but it may be possible for the interest to be claimed by the individual rather than the trust. If the trust was receiving income, but without the major expense of interest, it would then be making a profit. The interest would reduce the taxable income of the person claiming it (The unit holder).
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I suggest you find a good accountant who specialilses in working for property developers or who does developments themselves. These guys know the in and outs of options normal tax accountants haven’t even heard of.
You could be liable for CGT, stamp duty and GST when you sell depending on how you go about structuring things and the state you’re in.
A consultation at $500 could be the best money you spend this year. I know of someone who avoided paying CGT by getting good advice – when other accountants couldn’t see a way out.
Greg
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