Hi everyone. Just wanted to see everyone's thoughts in regards to purchasing a property through a PTY LTD company. Recently divorced and have closed the business due to the breakup. Due to a firesale on equipment(to get rid off the ball and chain quicker) and a failure to close contracts on time last financial year caused the company to have a small loss. It's all settled now and I'm the sole director. I trade Crypto through the company with the funds remaining more so for a hobby but its providing a relatively small weekly income. At the moment I have some borrowing power through my PAYG job and personal rental properties. I'm looking at purchasing in a couple of months if the market is showing signs of recovery/stability. Strategy will be buy and hold or a flip project. I understand with this purchasing structure I'll forfeit negative gearing if buy and hold or the flip doesn't work out and needs to be held. I've maxed out land tax in two states so will benefit from not having to pay for a trust or pay land tax. Anything else I should consider. Any help will be greatly appreciated.
You should seek both tax and legal advice. It can work out well in some states due to land tax, but in others you might be better off with a trust - which could potentially distribute to the company. Here is an old article that I wrote: Legal Tip 55: A Company Owning Property Legal Tip 55: A Company Owning Property
One of the more serious tax issues isnt the main residence exemption which probably isnt available for a flip since its an isolated profit making or business enterprise.. Its also what happens when it does sell or you wind down crypto. This could trigger a UNFRANKED dividend subject to top maginal tax rates and maybe company tax on top. Forget the company tax rate unless you plan of leaving all the cash in the company. A legal issue too if you injected the $$ by either lending to the company or buying shares. If any of the company issues relates to the divorce then you may already have opended the door if a property settlement wasnt completed. The shares or loan remain personal assets no different to owing a house or cash. Depending on the state yes a further land tax threshold may well be available (subject to unimproved land value)
My preference is to not purchase in a company, and I certainly wouldn't buy a significant asset in the company that housed my business. With a company you get: No CGT discount Harder to get the money out of a company (compared to a trust) Potential Div7A issues EDIT: This is very general advice. As Terry suggested, seek your own legal and tax advice.
But a company can have many advantages such as - new land tax threshold, in NSW this could save nearly $10k per year alone. - able to claim travel - able to claim depreciation on fixtures and fittings on second hand items - can retain income and pay 30% tax, which - allows greater compounding - is able to claim interest during construction - can lend other companies without Div7A issues. - shares can be transferred, usually without duty - lots of finance benefits. etc
Can also be structured so multiple company land tax thresholds can be accessed. Many people mention grouping but in a simple sense hubby and wife for example can each have a company. Neg gearing can also be accomodated provided that the company has more than one income source. This could be two properties or property + other financial investments. Trading companies should not own property due to asset risks. If a company is proposed to own property very careful consideration to a trust owning the shares should be explored. This can avoid the fixed nature of tax issued on sale or winding up etc. But it also can impact Grouping ie s29 of NSW Land Tax law too. Something extra for legal advice Related Companies: Section 29 of the Land Tax Management Act 1956 Extra costs do occur. eg ASIC annual fee $265 and indexed annually. Accounting and tax but often nothing too major but definately more than a individual adding a extra rental schedule to a return. Estate planning, control and succession are important issues to consider immediately too.
you get more issues with a trust that distributes to a bucket company and the funds are on-lent to another trust for the next development.
