Pay off Mortgage before tax

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drcoll
Member
@drcoll
Join Date: 2008
Post Count: 1
January 2, 2008 - 6:04 am
Hi all
If a PTY LTD company was to buy an investment property, would all interest payments, depreciation, expenses etc then be deductible against company profits for tax purposes?
Can additional mortgage payments also be paid down with the current income before tax is paid, as the company is aquiring an income producing asset? or can this only be paid off with cash the company has paid tax on at end of year?
Can the company then rent to myself at market rates? I understand the disadvantages of a company buying property are a large capital gains and no asset protection.

Any help appreciated
Terryw
Participant
@terryw
Join Date: 2001
Post Count: 16,213
January 2, 2008 - 11:27 am
Just think of the company as a 'person'.
Costs associated with investment would be deductible. If the rent is not enough to cover this, you will have a negative geared property and this should be able to offset other income the company has, if any.
If you wish to pay off a loan, you cannot claim the principle as a deduction as it is not an expense – you are just repaying what you borrowed. But you could pay off the principle before paying tax – but you should probably be careful not to leave a shortfall or the company may need to borrow to pay tax.
A company can rent a property to a shareholder or a director, but you should be careful to do it properly as directors are required to act in the best interest of the company etc etc And there may be many issues from a tax perspective too – such as FBT.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Scott No Mates
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@scott-no-mates
Join Date: 2005
Post Count: 3,856
January 2, 2008 - 10:00 pm
What you might consider is a pre-payment of interest (in June) if you need to have an expense.
As Terry points out, you shouldn't leave the company in a position that it needs to borrow funds to pay the ATO (or pay late fees) – these are not deductible expenses.
There should be nothing stopping the company leasing the property to anyone it likes (at market rates). If it leases to a shareholder or director at below market, questions can be asked.