An interesting point from Brad Sugars and the guys from Richmastery in their latest book in regards to stamp duty.
If you are buying a property that happens to be owned by a company you might be better off buying the company. If you were to buy the company and the mortgage it has over the property, you’d only pay stamp duty on the nett asset and not on the total value of the property.Example: If a company owns a property worth $1,000,000, but owed $800,000 on it, the company would be worth only $200,000. So instead of paying stamp duty amounting to some $39,820 on the $1,000,000 property you’d only pay $1,000 in stamp duty on the $200,000 the company was worth. That’s a saving of $38,820!
“If you can count your money, you don’t have a billion dollars”
J. Paul Getty
This is interesting. I once seen accountant Dale GG answer a question about doing this, and he said he new of no way to avoid stamp duty. Maybe this is a way of minimising it. But is there stamp duty on shares now? I thought it was abolished. to buy the company would mean just transfering the shares, so maybe there would be no stamp duty involved?
Terryw
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The book was only just released and these guys do a fair bit of property and business trading so I would presume that it’s something they’ve done before.
Of course there will be a lot of variables to consider.
i.e.
- Not just anyone will own a property through a company. Only investors, and not all of them at that.
- The vendor will need to be willing to part with his/her company.
- The company assets only include the property in concern.
- The company is free from other debts.
- The bank’s willing to transfer the loan – will most probably need to change director guarantors. (Brad mentions that in doing this you’ll save on loan stamp duty as well).
I would image that this would be easier, and possibly more common in commercial deals rather than residential. A lot more commercial properties would be held in a company structure.
Cheers, Leigh
Hi there
I guess it all depends in which State you are in.
In Qld if you purchase shares in a Company that is consider Land Rich the Stamp Duty payable is calclated at the value of the Companies Assets i.e $1 million.The law in WA states that if a company is land rich ie Land value greater than $1m and more than 80% of the value of the company is attributable to land then a greater than 50% transfer of shares in a company would be assessed for stamp duty at conveyance rates.
I beleive most other states have similar clauses.
Hi Leigh
The concept sounds great but I would be concerned about taking over a company owned by someone else. Even if you did all your due diligence there are still pitfalls. Several years ago I became aware of a situation where a company was taken over. Due diligence was done and everything came up clean, or so they thought at the time. So the deal went ahead. Some 18 months later the company and the new directors were served with a summons and ended up in the courts. The end result – lost the company and business, plus their own personal assets because personal guarantees had been given to the Bank.[
].I would never take over someone else’s company. You never know what is lerking in the background that a due diligence doesn’t discover.
Its like buying a used car – you are purchasing someone else’s problems.If anyone is considering this type of investing for the purposes of saving Stamp duty, also think about the ultimate loss. In my book I’d rather pay the stamp duty than try to save it by taking over someone’s shanky/shonky company with $1m of assets.
Just some food for thought.
Cheers
NessieSome very good food for thought [
].I think you’d only consider this on a very large deal, maybe apartment blocks or commercial deals.
Hello
In WA, the “land rich” threshold is coming down to 60%, because the government needs to find more money to fund their budget blowout.
But I think that the value threshold is still $1 million. That means that Leigh’s idea may work for properties that are cheaper than that.
However, Nessie’s made a really good point about the risk of buying a company – it’s the skeletons in the closet that come out to haunt you later. A friend of mine had a similar probelem. He bought a company which he was assured was “clean”. 3 months later, the ATO came after him, claiming that the company owed over a million bucks in unpaid taxes!! Fortunately, he was able to walk away from the mess because he hadn’t put too much into the company yet.
The way to deal with this problem is to get comprehensive “warranties” from the seller. These warranties are not like the fridge warranty you get when you buy a new fridge. They are basically promises by the seller regarding various things, for example that the company has paid all its taxes, and that it doesn’t owe anybody any money. The idea is that if any of the warranties turn out to be false, you can sue the seller for breach of warranty. However, if the seller doesn’t have the money to compensate you, or if the seller cannot be found, you’re still stuck with the problem!
Cheers
MSorry Leigh,
One more thing – it probably won’t work with very large deals.
Like I said, if the value of the company is over $1 million (I think that applies to most States and Territories), and the company is over the land-rich threshold (between 60% to 80% depending on which State or Territory), stamp duty will effectively be assessed as if you’re buying the land anyway.
So you might as well save yourself the headache of taking on the potential risks of buying a company, and just buy the land outright.
However, check with an accountant or lawyer if you really want to try it. They might be able to help you.
Cheers
M
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