Anyone have any suggestions on the best way to set up investment properties. Currently i have 2 properties in my name and have a Pty Ltd Company collect rent and then transfer a portion to me. I get taxed at (high tax bracket) on portion i receive while excess positive cashflow builds up in company at 30% tax. Is there a better way?[thumbsupanim]
lifexperience
Hi lifexperience
I’m new at this too, but my understanding is that it is better to have all IP’s in the company name.Later you can transfer 1 at a time into a trust.
If IP’s are in the company, you are paying the company tax rate and also if something goes wrong the bank can’t take your PPOR.
I am seeing my accountant next wk to get a structure in place so I’m not going to get hit with huge tax bills down the track.
cheersSuze
Suze
Why would it be better to buy in a company name? Companies do not get the 50% discount on CGT, so when you were to later transfer them to a trust, you would be charged 30% tax on the CG.
If something goes wrong, the bank may still be able to take your PPOR as you will be giving a personal guarrantee as Director, therefore your personal assets will be vulneable.
A far better option would be to buy the property in the correct structure in the first place. Trusts are usually the way to go. Talk to a good accountant about this.
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
Thanks Terry, i have shown my impatience by not searching around the forums. As I plan to have lots of cash+ properties, It looks like a lot of members suggest a family trust.I will research more. I am finding out that by jumping into the deepend quickly, that there is a lot of water….. anyone got some spare floaties.[blush2]
lifexperience
lifexperience, I’m wondering how it is that your company can keep the rent? If all they are doing is ‘collecting’ it for you, then any that they keep must surely be their ‘management fee’ which wouldn’t be allowed to be excessive?
Cheers
MelMel, a bit of a delay, I forgot about this post.
I transfer market rent (acct. reccomended technique)and have remainder[evo] build up in company.lifexperience
Hi guys,
I’m a bit slow on the uptake when it comes to tax. But if you own the IPs in your personal name, and use the companies to collect rent, aren’t you still earning the rent in your personal name? Isn’t it a clear case of tax avoidance, which the anti-avoidance provisions of the tax legislation will catch?
Cheers
EDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
awwww C”mon. I know a lot of people want to start out with the right structure. What is the best set up anyone knows of?
Or some one plain tell me i’m in the wrong forum or typing ffunny or bringing up old boring topics or or or or or or or
lifexperience
Hi Lifexperience
My acc. recommended that as I am a sole trader,I need to set up a trust for the PPOR and a company for the IPs. He said that you have to decide weather to do investment properties or developments. If you want to do both he suggests you form another company so that the Ips don’t get “tainted” by the developments, therefore attracting tax and GST. You do not have to pay tax on IPs here ( only if you are deemed by the IRD to be trading, ie selling within 3 yrs) but you do on the developments.
I am totally confused now, and obviously don’t know didly squat about tax and the best way to go.
A friend of mine says “don’t tell your acc. everything. They’re paid to keep you out of jail!”[guilty]Suze
I have spent countless hours with my accountant trying to understand all this on Company’s and Trusts – it is a huge minefield.
my advice – speak with several accountants on the same subject and see what they recommend.
Kind Regards,
George“If You never never ask, you’ll never never know”
My advice is to not rely on accountants entirely. They get it wrong, and some do not specialise in this area so don’t really understand.
It is best to read as much as you can on this forum and others, but read critically as you don’t really know if you can trust the information given. Then read up on the various papers on trusts and structures etc available. Then you should have a reasonable idea of what you want before you go and see your accountant.
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
Originally posted by Suze:Hi Lifexperience
My acc. recommended that as I am a sole trader,I need to set up a trust for the PPOR and a company for the IPs. He said that you have to decide weather to do investment properties or developments. If you want to do both he suggests you form another company so that the Ips don’t get “tainted” by the developments, therefore attracting tax and GST. You do not have to pay tax on IPs here ( only if you are deemed by the IRD to be trading, ie selling within 3 yrs) but you do on the developments.
I am totally confused now, and obviously don’t know didly squat about tax and the best way to go.
A friend of mine says “don’t tell your acc. everything. They’re paid to keep you out of jail!”[guilty]Suze
Hi Suze,
Id suggest you get a better accountant, or at least speak to a few more of them. The best accountant is one who actively invests in property themselves – does your accountant have a property portfolio of their own?
Buying properties in a company structure is one of worst things you can do. The best way, for both asset protection and tax redistribution, is to buy property under a trust structure with a company as the trustee.
Id also suggest you spend a lot of time studying up on this area. One thing you have to do is start with the end in mind.. how many properties do you plan to buy? If its only one, or a few. you may be better off buying in your own name. If you plan to own 10+ etc, you may be better off with a trust. Another factor is your line of work and the chances of being sued. Another again is your family situation, and whether you have a spouse/dependents to redistribute income to. Trusts can also have a wide range of set up and maintenance costs, depending on your requirements.
There is no simple answer to your question, as the best structure for YOU depends on the answers to the questions above. A good resource which explains all of this is “Trust Magic” by Melbourne property accountant Dale Gatherum-Goss, which can be purchased at http://www.businessmall.com.au/cache/item-375public.html?cache=no
Best wishes,
Jay.
Blind leading the blind!
lifexperience,
DO NOT use a company to hold investment property. Sure you pay 30% tax, but it starts from the first dollar. Companies are easier to sue and offer less legal advantages than Trusts when it comes to property.
Trusts (whether family, unit or a hybrid) pay NO Tax unless you distribute from the Trust. You can personally claim tax advantages through using a hybrid trust, so get the benefits of negative gearing.
A Trust is very hard to sue for assets…you can use a Corporation as the Trustee of the Trust…if someone attempts to sue they have to sue the Trustee – which you then dissolve & create a new Trustee, this isn’t perfect, but provides significantly better protection than a company holding the assets.
Also Trusts allow you to distribute returns to all the beneficiaries – so reducing tax via allocating money to children & other dependents who all get the tax free threshold.
Most serious investors use Trusts to hold their personal wealth – whether property, shares or other assets.
For more information on Trusts I suggest you look at purchasing the Trust Magic book written by one of the top accountants used by property investors (and yes I use him as my accountant, but are not paid for promoting his book).
You’ll find it at: http://www.gatherumgoss.com/shopping.htm
Cheers,
Aceyducey
PS: Suze – I reckon you’re getting bad advice. Shop around some other accountants & see what they think of the structure suggested by your accountant – I can picture them reacting with both shock & incredulousness.
Thanks for all your advice.
I am going to get some reading material on the Company/ trust issue and study up.
Yes, I’m seriously considering another accountant!
Although it’s hard when he’s friend!!
CheersSuze
I’ve heard of some holding props in a trust and distributing to a company thus getting the best of both worlds….. I don’t see why you can’t have both the co. and you as benificieries.
I’d check it out though.
Josh
I have said this elsewhere but here goes re my accoutant.
As a single person there is no benefit for me to have a company or trust, so buy Ip in my own name, saves a lot of mulla! time and paperwork.
Trusts can still be wound upDo not hold assets in the company…these were his words.
you can use the company to act as trustee of the trust.
as far as trusts: unit or discretionary . Unit sets or defines and discretionary allows you the discretion…..but I also think there are time lines here eg two years max to distribute, does anyone agree/ know?
The benefit is when you distribute funds…eg if you earn no income one year, to save on being taxed when you dont need to be….then distribute the income form the trust. If you earnt 49k and the trust had 15 k to give you, maybe you might think twice about taking it!
but hey, go ask more questions cause im not an accountant and me know nothin!
” a blind man may see what a sighted man may not”
Terry, down to earth sound advice again, Thanks
Jay, Acey, Monk, Elves Thankyou all ,, I am off to get that book “Trust Magic”,I appreciate your patience in typing out topics you may have explained many times before.
I like the idea of props owned by a hybrid discretionary trust with my company as trustee. Will read up and may do all future IPs.
If two blind men are in a dark room and there is no dog, why would you need a lead? [ears]
lifexperience
geo, mel, els thanku 2, I’d also like to thank the grammy directors for yhis dramatic unneccesary overthank thanking,……………..Thank you. he he he
lifexperience
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