Converting property to shares in a company

Discussion in 'Accounting & Tax' started by Jervisbear, 6th Jan, 2021.

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  1. Jervisbear

    Jervisbear New Member

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    My elderly parents own four residential properties in a Pty Ltd structure and want to get rid of the management overhead. The company has sufficient CGT credits to cover their sale. My question is: once sold, can they then invest the money into shares within the company structure for continued asset growth and dividends? There is no financial I imperative to distribute outside the company as this stage.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Do you mean the parents own shares in a company which owns property? Or is the company acting as trustee for them?

    If the company owns property it can sell the property and it can invest the proceeds into shares. But tax must be paid on the income.

    What are CGT credits?
     
  3. Trainee

    Trainee Well-Known Member

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    What's a CGT credit? Franking credits aren't tax credits, if that's what you are referring to.
     
  4. Jervisbear

    Jervisbear New Member

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    Thanks Terry, they are the directors and shareholders. Re tax, company pays usual rate on dividend income and then marginal tax rates if they take money out of the company as dividends?
     
  5. Jervisbear

    Jervisbear New Member

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    Sorry, poorly used term, was referring to their CGT concessions.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If a company pays a dividend it can have franking credits attached so the shareholder will get a credit for the tax that the company has paid.

    Tax Tip 295: Company Paid Tax is not the final Tax paid on its Income Tax Tip 295: Company Paid Tax is not the final Tax paid on its Income
     
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  7. Trainee

    Trainee Well-Known Member

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    Which CGT concessions are they planning to claim? Does this qualify as an active asset?

    If they are planning to sell everything, it might make sense to consider whether there is a better structure than companies. Consider income streaming and succession?
     
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  8. Hamish Blair

    Hamish Blair Well-Known Member

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    Companies don’t get the CGT concession if they sell an asset on capital account and make a gain.
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This is a bit vague wording. A company doesn't get the 50% CGT discount but the small business CGT concessions can still apply - potentially to reduce any tax to nil.
     
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