Company Structure

Why not look at trusts instead?

Companies are inflexible and do not get the CGT 50% discount that would be available via trusts. They also pay a flat 30% worth of tax when most individuals may be paying much less than this.

It depends on what sort of people. If one family unit a discretionary trust may be worth looking at. If bunches of separate people this may not work well (as the trustee has discretion on who to give income to) so you may want to look at unit trusts (which will enable the 50% CGT discount) or companies (Which won’t)..

If you do use a unit or a company then look at a discretionary trust owning the units or shares.

Buying a house is a capital expenses. If you buy a house in your own name you can't claim the cost of it outright – it is the same as a company or a trust. The house and fittings etc can be depreciated over a number of years though.

Just think of the company as a person – as that is what it is under the corporations act. It can sue and be sued, enter into contracts in its own name etc. The only thing it can't do is marry.

Also, you will find there are many tax hurdles to overcome if you are contracting and then using a company – you may still be individually taxed at personal rates if you/your company don't meet certain requirements – its know as the alienation of personal services income (PSI).

Also note that it is not a good idea to buy your properties in the same structure as your business. Business is risky and there is a good chance of being sued or insolvency etc. You don't want to lose your properties as well as the business. So you would set up a company to trade and a separate company as trustee for a discretionary trust to own assets.

G'day Terry

Thanks for the informative answers. I have a few questions if you don't mind.

If I have a property investor trust established with a Company as the trustee and I buy a property that is not positively geared, does this mean that:

1. I will have to personally pay for the difference in loan repayments vs income from property (plus expenses)
2. I assume the money that I pay into the trust to cover costs is not deductable in any way for my personal tax returns
3. I understand that the company will quarantine the loss until it one day becomes positively geared
4. Can the company still claim for things like depreciation etc.
5. I intend to keep the property indefinitely and ultimately it would become positively geared. I am assuming this is when the company would start paying back these losses to the ATO?

Thanks heaps for your time/contributions. I have learnt alot from your previous posts.

Andrew

Thanks for that Terry, makes sense!

So a workable (and legal?) solution would be to buy property in a trust, take out a loan in my name, then essentially lend the money to the trust and the trust pays me back exactly what my repayments are?  I then claim this on my own tax return, the trust carries the loss if it cant pay back the repayments as I would? This way the difference in loan repayments/rent is paid by me but I claim the whole interest amount. Is this right or have I gotten side tracked here?

Thanks heaps mate

Hmm, so basically I have to ride out paying my own money into the trust until it becomes cash flow positive otherwise put the property in my name which isnt my preference.

Hmmm, sounds simple enough. However I have been told that if I take out a loan to buy ordinary units in the trust I can then claim the interest against net rent distributiions from the trust.   Given that the property is negatively geared I can then offset the loss against my own income. I have been told this will work with me as the borrower whilst the coy atf trust guarantors the loan and owns the property.

Would this be workable with the ATO?

Thanks Terry