Hi everyone,
I had an employer once who had structured his PPOR so that it was purchased by his business (company) & it rented the home back to him. The arrangement was effectively negatively geared, so the business claimed the -ve CF as an expense, while the director paid market rent to the company. The property was rented to the director through the services of a rental manager. The company, of course, justified this through the capital appreciation. [blink]
Now this employer did some particularly dodgy things, which was why I left after a short time. (He still owes me Superannuation which the ATO has been chasing him for for more than 4 years!) [comp]
My question is: Is this a legally acceptable arrangement for tax purposes, or is this a dodge?
We’re in the situation where we cannot get a large enough loan for a PPOR, so we’re stuck renting, while our business has the turnover to satisfy a lender. We certainly wouldn’t consider anything illegal. We will be broaching this with our accountant in January, but they are not able to advise me until then (3 of their accountants were in a car accident, therefore off work, & they are backlogged with returns).
Any ‘advice’ or information you have would be appreciated.
Cheers,
E.
E
Maybe a better question is “is it worthwhile doing this?”
The benefits appear to be solely in the claiming of interest.
Your company must rent the property at market rent. So each year, the rent should rise in line with the market. At first there maybe a loss, but as each year passes the loss gets less, and the tax deductions decrease.
Then after a few years there will actually be a profit to the company. ie the rent will be more than the interest and costs. This will mean your company is now paying extra tax which you could have avoided if held in your own name.
Then there is the loss of capital gains tax free status. If you sell, your company will pay tax on the gain.
Also, land tax would be payable, where it otherwise wouldn’t.
If you are going to look at doing something like this, maybe you could look at using a tax, as this will minimise the tax payable down the track.
Terryw
Discover Home Loans
Parramatta
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Hi Terryw,
Thanks for your reply.[biggrin]
The main attraction for this proposition is not really financial. My husband & I have been property investors for several years. We had ourselves on the way to financial freedom, when our son was diagnosed with an illness which required expensive treatment. We were forced to sell our home & several other properties. Thankfully, the treatment was successful. We have since moved interstate & are re-building our lives again. Our current property portfolio is healthy, but not enough to be able to purchase another home ourselves. Although we have been exemplary tenants, we have had a string of bad landlords, 1 which evicted us because we asked to have illegal dangerous wiring fixed! [comp]
Our current landlords have notified us that they will be moving back from the country, & will not be renewing our lease as they’re moving back in themselves.
Our preference would be to buy a PPOR through the business (company), then buy it off the company when we can obtain finance ourselves. This will probably end up being a more expensive option, but it will mean we don’t have landlords looking over the fence regularly (the last landlords knew the neighbours!), or refusing to fix reasonable maintenance.
It just seemed like a possible solution. The government would get their fair share, while we get to get on with our lives & raise our kids in a safe, clean environment while investing in our future.
Cheers,
E.
Hi E
And don’t forget the golden rule of asset protection is not to own assets in a trading company. What would happen if your company got into trouble? Your company’s house would be at risk.
Far better off setting up a trust and have that own the house. You could also transfer the shares of the company to the trust and divert the profits into the trust which would help offset the negative gearing of the property.
There have been some tax rulings on renting from your own trust, but it does appear it can be done if you are careful.
Terryw
Discover Home Loans
Parramatta
[email protected]
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Just send me a blank email, with “subscribe†in subject line.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
Look at this recent case
Tabone and Commissioner of Taxation [2006] AATA 466 (29 May 2006)
http://www.austlii.edu.au/au/cases/cth/aat/2006/466.htmlIt is about owning a home using a trust
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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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