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Leaving behind a CP...

Discussion in 'Commercial Property' started by Tony Dolphin, 25th Feb, 2016.

  1. Tony Dolphin

    Tony Dolphin New Member

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    Hello everyone.
    I’m starting this thread to hopefully soak up some info and advice over time regarding purchasing a commercial property. I’m a newb to all this and anything I do know about CPs is from reading material online over the last year or two, particularly Somersoft and this here forum (thanks to all the contributors!).

    My situation is slightly unique. I’m planning to sell up and move overseas. I don’t plan on taking out a substantial loan for the purchase, rather it’ll be my own funds from the sell off (possibly a ‘top up’ loan but nothing more). This is one of the reasons why I decided to go comm over res, as any potential vacancies common in CP shouldn’t be a major issue re repayments.

    As an expat I have to pay a whopping 32.5% tax. Also, Vic recently introduced an ‘absentee owner surcharge’ for all non-residents (Aussie or not), which is an additional .5% land tax on your property site value + the original $725, making it well over 1/3 gone on tax. This too is another reason for not going res, as I’d hardly have anything left after rates, insurance and potential maintenance. As a result I don’t think it wise to go for anything <500k, which was my initial range, as it just doesn’t seem worthwhile. I’m thinking more around the 600k mark now.

    My intention down the track is to have all other potential outgoings covered in the contract and I’d probably even contemplate the idea of offering a marginally lower rent for the first term to enforce this and to also try and get someone in without delay.

    So, what would someone else do in such a situation? With this being the plan, buying vacant seems likely, which would mean I’m definitely paying GST, right? So should I be registering? Do I have any other options with regards to this? Also, apart from looking at potential properties for now, what other pre-purchase tasks should I be looking into? Sussing out a good solicitor, tax agent, PM?
    Thanks in advance.
     
  2. Chilliblue

    Chilliblue Well-Known Member

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    Start with a good account and see if property is the way to go.

    If it is commercial, there are several of us happy to answer questions.
     
  3. Bran

    Bran Well-Known Member

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    I wish I paid 32.5% tax. I realised this morning that I work half the year for free. (Which sounds way worse than earning 50% all the time).
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Commerical properties carry more risk so it is not as common to own them in personal names. But being a non resident complicates things because a resident director is needed.
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Commercial property can be a good fit with a SMSF in some cases. The s66 exemption and generous stamp duty concessions in many states also assist to enable personal ownership to be sold to a SMSF. (Conditions apply)

    One issue that obtains little press is that these strategies can be complex and acting earlier rather than later can be wise. For example many see SMSFs in pension phase as CGT free. However if a limited recourse borrowing is undertaken it cannot be a pension asset...hence CGT applies however at a far more concessional tax rate v's personal ownership. And if a SMSF owns the business premises there may be complex inheritance / control issues.

    A non resident however would have some difficulties using a SMSF.
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    You should also check the FIRB restrictions on ownership to determine if there may be a concern and understand the CGT impact of non-residency.
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    All good points @Terry_w & @Paul@PFI

    I naturally thought either SMSF or company as the investment vehicle but foreign ownership does complicate things substantially.

    @Tony Dolphin - how are you going to manage this? Who will be your representative in Oz after you leave?
     
  8. JacM

    JacM VIC Buyer's Agent Business Member

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    Hi @Paul@PFI

    Do you mean if there was ever limited recourse borrowing on the asset the CGT will be different irrespective of whether the borrowing has been paid off before pension phase? Or only if the borrowing is still present when the member is in pension phase? (And are you referring only to commercial property or residential also?)
     
  9. Tony Dolphin

    Tony Dolphin New Member

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    Thanks to everyone for their replies.

    Interesting. So are most purchases done as a company or trust? I assumed most risks are to do with the financial side of things? Eg, vacancies.

    Had a read of the FIRB regulations, aren't they more for foreigners rather than expats? Correct me if I'm wrong, but wouldn't CGT only be an issue upon selling?

    Well, prior to reading the replies, I assumed a property manager and a personal contact for any in-person requirements would be adequate in between personal visits every few years. Do you mean a resident director as mentioned above?


    Clearly there are new issues brought up that I haven't realised before. I just want to clarify that I am an aussie, just moving o/s. Thanks to everyone for the info, any elaboration on the above would be greatly appreciated. Cheers.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    A company must have an australia resident director. Since kenders want personal guarantees from all directors this makes it more difficult to have a relative or friend as an additional director.

    You also have to be careful on the tax side as there could be tax issues if the company or trust ends up being a non resident which could happen if the central managemwnt and control os overseas.

    You shpuld read the foreign takeovers and aquisitions act as there are issues with foreign contolled companies and trusts owning land even where a non resident aussie citizen is involved. Even issues where the non reaident owns in own name.

    There is greater risk with commercial because of the extra potential for disputes and these disputes often end up in the higher courts.
     
  11. Iamnumber5

    Iamnumber5 Well-Known Member

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    Hi @Tony Dolphin,

    I might be in similar situation with you. I am working overseas at the moment.
    Last year I bought a vacant commercial property under trust with company as the beneficiary.
    Being vacant CP, you will need to pay for GST for the purchase unless the vendor is not GST registered (that happened to be the case with us, as the vendor GST registration had lapsed).

    I was told that you can avoid paying GST if you could get someone to sign a "lease contract". Best to speak with your solicitor about it. Stamp duty on the purchase is calculated based on the figure GST inclusive, so best if you can avoid it.

    Good PM is crucial IMO.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Iam jow did uou overcome the resident director issues?
     
  13. Iamnumber5

    Iamnumber5 Well-Known Member

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    @Terry_w , we appointed family members as resident directors for the time being as we are returning to Melbourne soon.
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Good that you had someone willing to go on as being a director is risky business.

    Did you know you would have probably needed your mortgagees permission to do this? But what they dont know cant hurt you.
     
  15. Tony Dolphin

    Tony Dolphin New Member

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    Hi Terry, thanks for the advice. Regarding the last paragraph, which risks in particular? Are you referring to the possibility of being dragged into the courts and having legal fees to deal with, in which case wouldn't the legal fees be the similar whether your private or company owner?
    OR do you mean potentially being held personally accountable if something goes wrong at the lessee's workplace because a different set of laws applies depending on whether one is a personal owner or a company owns it?
    Or both?
     
    Last edited: 2nd Mar, 2016
  16. pinkboy

    pinkboy Well-Known Member Premium Member

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    What @Terry_w means is that Commercial isn't just some '$900 rent owed and a couple of nail holes in the walls needing patching up' coming from the bond and with landlord insurance protection and a small court tribunal.

    Commercial problems run into the $thousands and $tens of thousands really quickly, with very few 'quick' remedies until you go through higher court systems which take many months. These can be things like large roof leaks, road/access disputes, other tenant disputes etc.

    Imagine you can't do anything for several months while the interest racks up from non payment of rent, outgoings, GST while they are still trading somehow.

    You can't just 'forklift' em out ala Dazz style of old.

    pinkboy
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Pinkboy is on the ball. Could end up in supreme court with commerical so ideal to have a limited liability company as legal owner whether is its own right or as trustee.