Business (comany+trust) paying rent to property owned by the business owner

Hi guys, my wife has a tuition business and we plan to put it under a company+trust account structure. We are in the process of buying a property which allows us to live upstairs and run the business from the ground floor. Since the business will be in a company+trust setup, can the business pay rent to my wife? Or does the house need to be set up in a company+trust structure for that to be possible?

Shiran

 

Do you understand the potential impact on your ppor cg exemption?

 

Your business can pay market rent to you for renting a property you own.

I am not sure if it is a good idea.

 

Its also possible the business is receiving PSI (personal services income) and this may prevent deductions for a home or limit to whom income can be split or shared. Part IVA could also apply to change what is presently her income (PSI) to that of an entity but the PSI rules may address that anyway. Dont assume a trust is effective. But if there is a arms length lease for a % of the property to the entity then there may be a deduction. But then the owners will have a equal amount of assessable income and be allowed a % of outgoings as deductions. There may be a % CGT issue where a % of the home is used to produce income.... from rent. If no rent is paid (and no deductions claimed) then there may be no CGT issue contrary to most opinions. The % CGT issues is mostly evident when a sole trader or partnership busienss is run from home and reason why a trading entity can make sense. But the alternative is worth understanding to compare.

Also consider the WA land tax issues. Partial exemptions and concessions are available if only some of the owners use the land as their primary residence or if the land is used for both exempt and non-exempt purposes, such as residential and business/commercial purposes

 

perhaps consider renting, and using the 6 year rule, with you subleasing part of the property to the company

 

Thanks so much everyone for the information and suggestions. I will do more learning to understand the information you have provided so that I can make wiser decisions!

 

No I don't, I will look into this!

 

You would lose the full exemption and the future potential CGT could be much larger than the extra deductions you would get by claiming part of the interest and costs of the part of the property rented out.

 

Thanks so much for your answer. I've enjoyed reading your other posts on this website. Do you have a book that brings together your accounting, law and property knowledge?

 

I was planning on writing a book, but it is a lot of effort and I have so much more effort to cover in these tips so I have to get them out first.

BTW, I have no accounting knowledge - no interest in accounting and I am not an accountant. I like tax - I mean I don't like paying it but like reducing it.

 

I hope you get a book out, I think many people will benefit from it! Many people are coming to these forums because they have massive gaps in knowledge that the available books don't seem to fill.

 

When times come - seek Terry's service.
That is what I will be doing when I am ready for my next development venture.

 

the small business CGT concessions may apply to the sale of the property in future so CGT may not be an issue just sonething to manage. the gain may well be able to be reduced to zero.

 

Recent cases on the small business concessions place some question over the past belief it is easily accessed. How active is the active asset ?
Eichmann +

Mere passive rent will not assist the active asset test

 

the original decision in eichmann was a bad result but when it went to the full federal court and the decision was oveturned it confirms a broader interpretation of the meaning of active asset.

rus case is a more interesting one as it stated "where it is claimed that an asset is used in the course of carrying on a business, such that the owner is entitled to a CGT concession in relation to the gains made on its disposal, it needs to be established that the whole or predominantly the whole, of the asset had been so used"