Hello everyone,
We have a PI in Sydney bought under a company structure about 5 years ago that has doubled in value. We were newbies and still are newbies (too busy working and not enough time spent on personal wealth strategies, but looking to change that !!). Why is it bad for PI to be under company structure ? If it is bad, what can we do to sort out the problem ?Any assistance will be much appreciated.
Thanks and Cheers, QB
One downside is that companies are not eligible for the 50% CGT exemption. This is only available to individuals and trusts. (I.e. individuals and trusts are only taxed on 50% of the taxable capital gain)
What can you do? Not much. It’s likely that you will trigger a CGT event if you move it outside of the company.
Will it affect you? No. Only if you sell.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auHello Stuart,
Thanks for your reply. I was just looking through some of the other topics when I came across a comment by TheEnjoLady:“Never buy an appreciating asset in a company name unless the company is the trustee for your trust.”
which ties in with what you said, but would you (or anyone else ??) be able to shed some light on the last bit about the company being a trustee (how does that work ?)
Is there any way I can access the equity already built up in the property ?
Cheers, QB
G’day QueenBee,
From what I understand, you personally cannot access the equity built up in the property owned by your company….
But your company can, or at least the directors of the company ( probably you ) can on behalf of the company.
This is all done in much the same way that you would if you owned it personally – simply go to the bank and ask for more money, based on the increase in equity.
Thanks,
BDM
Guys
Does anyone know if QueenBee creates a trust and the existing company that owns the property becomes the trustee can the property and other assets belonging to the company just become part of the trust. I am guessing no but it is a thought.
QB You might want to contact Dale Gatherum Goss 03 9723 7699, he a well know accountant that specialises in trusts.
Good Luck
Cheers
Leigh K[
]Read, learn, grow but most of all just do it.
A trustee (which can be a corporate trustee – i.e. a company) normally holds the assets in trust for (ITF) the trust. The trust is still the owner.
This is not really going to help you at the moment. However, if you decided to establish a trust you could have your company act as trustee for furture investments.
Re: accessing equity – BDM is correct. The company would borrow more (subject to serviceability).
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auThe ENJOLady – don’t think he can do this – would trigger CGT event.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auSorry TheEnjoLady, but the answer is indeed No.
If you transfer the PI into a trust, even though the company is the trustee and the PI remains in the company’s name, there’s a transfer of beneficial ownership, which is a CGT event of the worse sort – you’re up for CGT, but you didn’t even sell the PI and therefore have to pay for it out of your own pocket! What’s worse, if you sell the PI that’s now in the trust, you’ll still have to pay CGT if the sale price is higher than the new cost base (ie the market price at the time the PI was put into the trust). Talk about a double whammy.
The main benefit of a company has, and always will be, limited liability. If for example the roof caves in because the owner (ie the company) was negligent and didn’t maintain it, and the tenant is injured and his belongings are damaged, he can only sue the company, not the directors. The directors will usually only be personally liable if they breached their duties as directors of the company, they gave personal guarantees (eg to the bank) or if they allowed the company to trade while insolvent.
So there is still a benefit of having a PI in a company, although the liability issue can usually be minimised through insurance, and as everyone else has rightly said, you lose out on a lot of benefits that you would have if the PI was in your name (or in a trust).
That said, it’s still worthwhile checking with a good adviser (eg accountant or lawyer) regarding whether you are in fact able to salvage the situation.
Cheers
MThere are some possibilities in that you can convert a company into a trust (as far as i am aware). Its hard to see if this can apply here, but talk to a tax accountant on this one….could have potential..
Pete
…Beware of the dreamtakers…
Curious to know if your company purchased a property, could it then lease it to you as a person? Are there any leagal problems with this? Any help would be appreciated
Hi QueenBee
not sure if this can be explored further for a satisfactory result. I once looked at buying a block of about 10 units, and it was pointed out by the agent selling the property, that the units were owned under a company structure.
The sale would involve the purchase of the Company (which happens to own the property) and consequently the Company still owns the units. The Company just happens to now have a new owner. The property hasn’t changed owners (no stamp duty for the new owner) and you would supposedly deal with the profits of the sale of the your Company in a more beneficial way.
This of course would only be of use if you are able to on sell your company and don’t have other ties to it.
Seems like a plausible idea if you can set up a property specific company that can go with a property.Hi lints,
Your plan is great, except for a little problem. You still have to pay stamp duty on the transfer of the shares in the company to you. And if the company’s only asset is the block of units, and the value of the block is more than $1 million, it’s a land rich company, which means that the stamp duty you must pay is the same as if you bought the units in your own name.
Read one of the other posts I made (yesterday I think it was) regarding the ins and outs of stamp duty.
Also, there’s another thread where everyone is talking about using companies versus trusts or just having the IP in your name.
Cheers
MHello everyone,
Special thanks to all who provided input (I love the “community” spirit in this forum, keep it going) to my dilemma. Some good advice which I will take on board and explore further, will post any future solution taken on the forum.Looks like this will prove to be a costly exercise for me (I’m really kicking myself here), I guess it’s a case of live, learn and benefit another day. I hope others will also benefit from this “bad” experience of mine.
Cheers, QB
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