Should a property be bought under a company name for investment?

No you should not buy under your company name,

1. If you do any capital gain under a company structure  will not get the 50% capital gains tax discount as you would if you held it in a trust, or your own name.

2. any property that is held under the company name will have no protection if any other business held by that company go belly up and creditors go looking for assets to seize, the main reason you buy or build a business under a company name is to protect your other assets right, so why place a property under the company name where it is not protected.

I also would suggest it is not wise to buy an appreciating asset in a company as you lose the 50% CGT reduction for assets held over 12 months – which could cap your tax at half of the top marginal rate of 46%. 23% is less than the company rate of 30%.

And you certainly should not buy in the same company you trade with. Businesses are often sued, and this will place the properties at risk.

I would look at trusts, probably in your situation a discretionary trust. Losses cannot be offset against no trust income, but being self employed, you may be able to structure it so your company profits can flow into the same trust offsetting losses.

Blueheeler, losses cannot be be claimed by a beneficary. Unit holders may be able to claim a loss by borrowing to buy the units, but to enable this to happen there seems to be too many restrictions required for the ATO to accept it.

Hi Blueheeler,

If you are talking about the Chan and Naylor one, then I think this is a hybrid trust with a few modifications. Losses for these still cannot be distributed. It works like a normal hybrid trust – interest is claimed by the unit holder and the trust therefore makes a profit which can offset other costs such as depreciation, council rates etc. This trust has been out a few years already, but I am not sure if there are any private rulings regarding this – this would be the only way to check with the ATO its viability.

Hi Terry, its a property investment trust, not hybrid. Yeah, totally agree, firstly confirm with the ATO.

You are absolutely right, the only dif is the land tax concession.

Property investment is considered a lucrative business option. More and more people are buying investment property in order to earn revenues continuously. With property value rising over time, your investment will help attain capital growth.

Hi B

That alert is specifically about unit trusts, and it doesn't look like the ATO favours them!

There are other alerts, IDs and tax rulings and private rulings on various hybrid trusts on the ATO site. They don't like them if the trustee has discretion on who to give income to. e.g. you can't just get the spouse with the highest income to claim the loss for buying the units if they are not guaranteed all or most of the income from the trust.

Hi Angela

Your right, banks don't generally like lending to trust structures and you normally pay a higher interest rate to access funds. We personally have had no problems securing funds using our hybrid discretionary trust where our company is the trustee only and where we personally guarantee the loan. We like to keep any investments completely separate to our company.  Finding a property savvy finance broker who understands trust structures helps.  We have just secured funds for a development site through RAMS/Westpac using our trust and it was a very smooth transaction.

Regards
Adrian and Amber

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Ruslan,

Your question is a bit vage. A 'business' is just a generic term, not a legal entity. Only legal persons can own property. A company is a legal person. A person/company can own in their own right or as trustee for a trust.

You should not own a property in a company in its own right because:
1. CGT will be higher
2. Income from the property will be taxed at fixed 30%
3. Income from a company does not retain its character. So a CG flowing through to an individual will not remain a capital gain, but will be dividends – which is no good if a person has a capital loss which they could offset.

Def do not buy any asset in the name of a trading company as if the company fails the asset will be lost.

Look at using discretionary trust to own property. You cannot say that these are the best structures as what you consider best will be different to what others consider best, but for a property that makes a nice profit these will be hard to beat.

It is possible to change ownership down the track but you will be up for stamp duty and CGT and legals and new loas etc