Hi All
I am new to property investing, in fact I have never brought one yet, I am just after a bit of advice on our situation. We are looking to build a new house to sell asap we have a company that has tax credits associated with it as it runs at a loss every year (lifestyle business) , we were thinking we should build this house in the company name because of the associated tax losses, but then we have to pay the gst related to the sale. Does anyone have any experience with this situation, is there GST on new houses? or is it just the land? and on the sale of the property anything we have spent on the property we can obviously claim the gst portion back. Does anyone have any advice on this situation?, we have spoken to the accountant but did not get a clear picture of how everything works.
thanks cheers
You will find that GST doesn't depend on the entity, but on the property type. GST is payable on new houses whether you buy in personal names or company – but it will be built into the house.
But you should not use a company for several reasons
1. No 50% CGT discount.
2. flat 30% tax.
3. asset protection
Better to look into trusts and you may be able to distirbute any income from the trust to the company to offset any losses.
You should see another accountant too.
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
Hi Terryn
thanks for that, yes I know we need a new accountant, I just need to convince my husband. So if we build in a trust we get the 50% CGT discount, but is that if it takes longer than 12 months to complete.
50% discount on assets held longer than 12 months – from date of contract.
But when you say 'complete' does that mean you are building something with the aim of selling for a profit? If so CGT may not apply, but straight income tax.
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
Yes it will be a new house, so with the income tax it is 30% for the company, and with all the losses we have in the company I was thinking that would be the way to go?? then the income would be offset by the losses?
Inflexible.
Can achieve the same wit a trust with much greater flexibility.
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
ok, thanks, will look more into trust
Hi Sandrae
Rather than become an expert at such things yourself, it's far more efficient to simply leverage a pro. Why not contact Terry and have it all sorted out in a jiffy.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
To reiterate what Terry is saying, a trust can distribute profits to the company to recoup losses (assuming you pass the same ownership test) and then can distribute the remainder to individual beneficiaries.
That way you would pay the minimal amount of tax.
Also, just to clarify, the company doesn't get the CGT discount even if it receives the capital gain through a trust distribution.
ie – If a trust makes a capital gain of $100,000, and is eligible for the discount (ie – asset held over 12 months)
If distributed to company – taxable distribution is $100,000
If distributed to individual – taxable distribution is $50,000 ($100,000 less 50% discount)
As well as the flexibility of a trust, there is asset protection.
If you own the shares in the company in your own name and you get sued or get into financial trouble, your shares are an asset that is available to creditors and bankruptcy trustee etc.
If you are a beneficiary of a discretionary trust you have no proprietary interest in the trust, creditors can't get at its assets.
If you must use a company or a unit trust, holding the shares or the units through a discretionary trust will help with the asset protection.
if you set it up wrong, the entities may be considered your alter ego and the court will take the assets in them anyway.
good luck
D
RPI | Certus Legal Group / PRO Town Planners
http://www.certuslegal.com.au
Email Me | Phone MeProperty Lawyer & Town Planner
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