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Tax/Investment issues with this set up

Discussion in 'Accounting & Tax' started by MBowen, 12th Jul, 2015.

  1. MBowen

    MBowen Active Member

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    Hi everybody just wondering if anyone can help me with the tax structure of this proposal.

    I'm close to retiring PPOR paid off, number of cashflow properties. I just had a large amount of equity released from PPOR into a separate offset account. I'm shutting down my business this month but was thinking of leaving the company open as it wont be trading and buying property, renovating and selling for a profit with money from the offset through my company. My reason for doing this is to save land tax (as im about to reach paying tax in two states) and asset protection. My cashflow properties would be able to support us and this would be more like a hobby. I was thinking of using the offset account to buy the property rather than deal with the bank directly and I'm hoping not having to go through finance will be able to get me a better price for people looking for a quick sale. So my main question is this possible can I transfer the offset account money into the companies account and than buy properties? What would be the tax implications considering its a PPOR.

    Thanks Matt
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Who owns the shares in the company? If you then they will be property which can be seized by creditors.

    Offset money is just cash. No tax implications on this.
    You can transfer money to the company, but a company is a separate legal person so you should have a loan agreement. You could lend at interest or without interest, but need an agreement to make sure there certainty if you were to lose capacity or die. stops arguments about whether the transfer was a gift, capital contribution or a loan.


    You might be better off in borrowing money and lending it to the company at the same interest or higher than you pay the bank. This way the interest on the purchase would be deductible.
     
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  3. MBowen

    MBowen Active Member

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    Hi Terry it's just my wife and I, both with 50% ownership each. So I could charge interest to the company structure for the amount of capital I put into it to start it up, awesome but who would I need to set up the loan agreement, a lawyer? So once I retire I'll still be paying over 30+ cents for each dollar in IP profit if my cashflow remains the same, but since its a company structure it will be capped at 30 cents from memory is that correct so it will be worthwhile definetly charging the company interest?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You would probably want to lend the company money.

    e.g. $500,000 purchase price.
    If you use $500,000 cash to 'gift' to the company you will incur interest at the rate of about $25,000 per year at 5%. This won't be deductible to you or the company.

    If you and wife lend the company $500,000 you will be paying $25,000 interest (expense) but getting say $25,000 interest as income. Income - expenses = Nil. But the company will be left with a $25,000 interest bill.

    To do this you would need a commercial loan agreement which can be drawn up by a lawyer. You may also want to take a mortgage over the property as security for your loan. You might want to get tax advice while you are at it from the lawyer or a tax agent.

    The company will then claim the interest against its income from the rent etc. Any left over will be profit which can distributed to shareholders or retained by the company.
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Why haven't you considered a superannuation property strategy before a company ?. Tax rate on net rent = zero. Tax rate on CGT = zero. The SMSF gets a separate land tax threshold as well.
     
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