HI All
I need to clear up some confusion about purchasing property as a company in structures. My apologies if this question has already been asked.I own 3 property's which rent for a total of about $39208 total a year. This is just rent before any costs taken out. Sounds like allot doesn't it !!!
Anyway, my accountant advises me that before I start trying to structure my properties under a company, my properties should supply around $70 000s worth of rental income per year before it is worth trying to structure them under a company name.
Can anyone explain to me why this is the case ? or explain why this isnt the case?
Thanks in advanced.
GCould be a number of factors – you should have asked your accountant this question, but generally speaking;
1. Company- can’t pass on -ve gearing or any lost ( this may be the reason for the 70k buffer..- are you making a lost right now?)
2. No land tax threshold
3. No CGT discounting.
4. The company 29/30% tax rate – i have a feeling this is the reason for the 70k buffer, making 39k in rent is not a lot but depending on how much you make on your personal tax return and what tax bracket your on, company /trust structure MAY work better for higher rent.Regards
MichaelMick C | Shape Home Loans
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No one should own real property in a company because of 2.5 reasons:
1. No CGT discount
2. Income does not retain its character
3. Profit can only go to shareholders, or employees as a wage (or contractor).Therefore no one in the know would ever recomend a company to own property – real property, shares etc.
Look at trusts instead/
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
Hi Terry
Can you expand on no. 2 please?
Can you distribute the company profits as franked dividends at a later time?
Thanks, TraceyHi Tracey.
Say Tracey purchased $100,000 in shares and these dropped and she sold them for $40,000. She would have a Capital Loss of $60,000. This loss cannot be used to offset her income because it is capital in nature.
Tracey also owns 3 properties.
A. In her own name
B. In her company
C. in her trust.If she sold A and made a $60,000 CG how much CGT would there be? Nil because the gain can be offset by the prior loss.
If she sold B and the company made $60,000 how much CGT? The company would pay a CGT of 30% of $60,000 = $18,000. The profit would be $42,000. This could be distributed to Tracey. But it will not be a CG will be dividends. Because tax has been paid the dividends would be franked and Tracey may be able to claim some franking credits, but this is not a CG and so cannot be used to offset the loss.
If the trustee of a discretionary trust sold the property and made a $60,000 CG then the trustee would consider all the beneficiaries and may decide to chose to distribute this to Tracey as the income would still be CG in her hands (ie retainng is character) and so she could use the loss to offset the gain so no CGT is payable.
(assuming sold within 12 months so no 50% discount and may other variables left out).
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
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