Own as individuals, rent paid to company?

Discussion in 'Accounting & Tax' started by Kat, 27th Dec, 2017.

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  1. Kat

    Kat Well-Known Member

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    I read some US specific information about individuals renting the property to a company they own at a token amount, then their company renting at a higher rate to tenants. This reduced their total tax payable as the company tax rate was lower than their individual income tax rate.

    We may be renting out our current PPoR in the new year, this property is owned by my husband and I (and the bank) as individuals.

    We're also separately setting up a trust and company to invest in shares using borrowed funds.

    1. Could we have rental income from the property paid directly to our company?

    2. Would we still be able to claim our expenses against our personal taxable incomes?

    If anyone here done something similar I'd be keen to hear about it.


    I will be seeking advice from my accountant, but interested in self educating before that discussion.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    @Kat - Are you seeking advice for a US situation or trying to do it in Oz?

    • Renting to a company is fine, the subletting by a company is fine provided the company seeks consent to sublet.
    • Any sublease must expire prior to the lease.
    • The length of the term of the lease may be considered a sale of the land depending on the circumstances.

    You may be cutting your nose off to spite your face - reducing the rent to a related party may result in a reduction in the ability to claim costs/expenses.
     
  3. Kat

    Kat Well-Known Member

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    @Scott No Mates thank you for responding. I'm researching replicating the approach in Australia.

    A "reduction in the ability to claim costs/expenses" would definitely make this idea less appealing. And the land sale component is also worth looking into further.

    Appreciate your help.
     
  4. Terry_w

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

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    You would only be able to claim expenses in full where the property is rented at market rates to the company - which would generally mean the company won't make any profit.
     
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  5. Mike A

    Mike A Well-Known Member

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    Fletchers case says your expenses will be limited to income earned if only renting at a.nominal rate.
     
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  6. Hamish Blair

    Hamish Blair Well-Known Member

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    What if say hypothetically the company took a long term lease at $x per month, and the company rented on a short term basis via Air BnB.

    Much like how Quest or Somerset apartments do.
     
  7. Terry_w

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

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    Could be possible in limited circumstances.
     
  8. Kat

    Kat Well-Known Member

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    @Hamish Blair have I understood the scenario you mention correctly:

    1. The individuals provide the property to the company on a long term lease.

    2. The company leases the property out on a short term basis.
     
  9. Hamish Blair

    Hamish Blair Well-Known Member

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    @Kat yes. Different risk profiles. Might be possible for the short term lessee to make more $ over the year than the long term lessor but with more volatility in earnings.
     
  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The Fringe Benefits Tax impacts for the company also need to be determined. eg If the company uses the premises and a Director / employee or third party arrangement exists