Join Australia's most dynamic and respected property investment community

Companies and PPOR

Discussion in 'Accounting & Tax' started by alexm, 13th Nov, 2015.

  1. alexm

    alexm Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    304
    Location:
    Sydney
    Is it possible to claim the CGT exemption for a PPOR if the property in question is held in the name of a company (and the individuals are directors)?

    Thanks
    Al
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,949
    Location:
    Sydney
    no
     
    York likes this.
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,949
    Location:
    Sydney
    INCOME TAX ASSESSMENT ACT 1997 - SECT 118.110 Basic case

     
  4. Greyghost

    Greyghost Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,259
    Location:
    Melbourne
    Can't be your home if it is the companies ;)
     
    Terry_w likes this.
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    Main residence exemption is only available to a legal owner or indirectly through a spouse election. eg two singles each own a PPOR meet and live in one of them. They must make a choice about which main residence exemption is used / shared from that point. No double dip. ie His 100%, Hers 100% or 50/50.

    Not available to a company, trust or a non-resident (generally)
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,949
    Location:
    Sydney
    I believe that is a way of getting the main residence CGT exemption where a trust owns property by utilising a life interest strategy - the beneficiary is allowed to live their for life. Not sure how this works though.
     
  7. alexm

    alexm Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    304
    Location:
    Sydney
    @Terry_w thats very interesting. I'll check that one out.
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,756
    Location:
    Perth WA
    Oh my goodness - Can it be true?! :p
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    Take care with that. The land tax problem might outweigh other issues. There is a trademarked trust deed that some promoters tried and tried and tried to argue this point... OSR wouldn't have a bar of it as it fails the NSW fixed trust. And there can be duty issues in some cases..

    I did say "generally" in my post expecting someone may raise the life interest. Of course a company cannot provide a life interest.
     
    Marg4000 likes this.
  10. Junior

    Junior Member

    Joined:
    7th Sep, 2016
    Posts:
    19
    Location:
    Melbourne
    Hi Terry and Paul,

    I'm aware of a situation where an individual's home is owned by a company, of which the individual is the director and sole shareholder of the company.

    If they wanted to transfer ownership of the property from the company into their individual name, what might the implications be?

    - CGT - gain taxed at 30%, no PPOR exemption or 50% discount?
    - Stamp duty (VIC). Is this applicable?

    - Is there a way to obtain a favourable valuation for determining the above taxes?

    Are there any strategies to reduce or avoid the above? I know this might not be simple, but your thoughts/ideas would be appreciated.
     
  11. Junior

    Junior Member

    Joined:
    7th Sep, 2016
    Posts:
    19
    Location:
    Melbourne
    Another thing occurred to me. If the company has no other assets, sells the property and pays CGT at 30% on the profit.

    It would then make a distribution of profits to the shareholder, along with franking credits. So if the shareholder is on a low MTR the distributions could be spread over several tax years and they could then would receive a refund of franking credits.

    Am I right on this?
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    Stamp duty, legal costs and income tax (CGT with no discount.) all based on market valuation. The sole strategy I know is to NOT buy your home in a company. You could expose yourself to FBT problems in the most extreme examples also.

    An individual's home ??? No its the company's property. A company owning the property is akin to living in a rental. You do not own it. It may also be exposed to estate planning problems too.

    If there is a reason NOT to personally own assets then PC isnt the place to seek solutions. A good lawyer needs to advise on asset protection and trusts often are considered. Trusts can have some favourable outcomes in Vic for that issue.
     
    Last edited: 11th Nov, 2016
  13. Junior

    Junior Member

    Joined:
    7th Sep, 2016
    Posts:
    19
    Location:
    Melbourne
    I know someone in this situation. Hence I'd like to understand some of the implications because I realise it's not good.

    It's not a strategy I'm looking to get into!
     
  14. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    Possibly. You would need to retain the proceeds in the company all that time. It may mean that the annual dividend to the shareholder needs to be less than $14,700 a year approx to a "no other income" shareholder or a tax issue may dilute that refund. ($14.7K grossed up = $21K pa which is approx the tax free threshold after offsets)
     
  15. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    Or liquidate the company :)
     
  16. Rob G

    Rob G Well-Known Member

    Joined:
    16th Oct, 2015
    Posts:
    167
    Location:
    Melbourne
    Yes, provided each share is accompanied by a right to occupy.

    "Ownership interest" includes a share in a company that owns an interest in land where the share gives a right to occupy, s.118-130.

    Not a common structure these days, originally used for apartments.

    It is possible to convert ownership to strata title without incurring CGT for 'continuing owners'. However, each state has its own stamp duty rules.
     
    Terry_w and alexm like this.
  17. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,358
    Location:
    Sydney
    I was waiting for that....Company title explained.