Terryw's Structuring Strategies

Can u explain the LLC structure and the features you want?

 

As far as I know, it's a business entity that you hold your real estate with, allowing you to claim business deductions for things such as meals, travel to properties etc, and the tax is also lower for the income generated in an LLC. That's my gathering of it from what I have read. If that's what you were asking? And this is based in the US. So I'm wondering if Australia has something similar to this? My main reason for wanting this is the better tax deductions. Thanks terry sorry if this post is confusing!

 

In Australia someone can only claim expenses that are connected to the production of income. So an entity owning property cod claim expenses or an entities owning share or units in a trust could claim expenses in limited circumstances.

 

Hmm okay that sounds simple enough, so in saying that, I can claim the same deductions as an individual that owns an income generating real estate property as what a business entity could?

 

Take care with a LLC and the Controlled Foreign Company rules if you are a tax resident of Australia or even the USA. A US LLC is sort of treated like a partnership here and possibly subject to dual taxation... CFC rules were first developed in the USA and are intended to limit deferral of tax on income in some cases. So retention of profit in the LLC at a sheltered rate can be treated as if the company controller received profits... Australia has had mirror provisions for some time

 

There is not actually such thing as a business entity. Some entities may be more popular for use with a business eg a company but a company can also owns or invest in property. A owner of property generally owns a passive interest. For the interest to be business income takes a substantial activity.

Passive owners cant claim certain deductions eg office costs, wages etc in many cases. But a business of property management may be able to....Needs to be significant to be seen as business income. But in all cases the costs must be necessarily incurred...Spending money to burn profit isnt a suitable purpose. Also likely a fringe benefit or private cost.

This issue is clearly reflected in the company small business tax rate of 26.5%...If the company owns rental property the tax rate is 30% as its not a small business...No business income.

 

Wow thanks for that information Paul, that's really cleared up a lot for me! So as real estate investors we are technically passive investors? Hence not entitled to business-like deductions?

Is travel to inspect a rental property a deduction for a passive investor? And maybe say a meal one a month to discuss business with my business partner?

 

Travel can no longer be claimed with the new laws however a company might be able to claim.

 

Hmm okay so would it be worth structuring myself as a company in order to claim these additional expenses?

 

Not solely for this reason. Realistically how much travel could be involved?

 

Hmm not a great deal, I'm in Sydney and travel to QLD, but if that's an extra deduction for me at no extra expense to own a company then I'm thinking why not do it? Obviously this is just my opinion and I don't really know all the ins and outs of taxes but I'm sure your professional opinion could steer me in the right direction. Because at the end of the day we're all here to create more money in our pockets aren't we?

 

I suggest you forget the travel expenses and focus on the other issues - what about the CGT for example.

 

Fair point, for CGT I'm thinking of doing a roll over to another property and not pay CGT?

 

Think again! Doesn't work like that.

 

Oh really? Man I've got a lot to learn still!

 

Fantastic post Terry W.
Wish these were such information in 2000 when I started to invest in properties.

 

Incorporating a Trust into a Strategy Recycling Debt Incorporating a Trust into a Strategy Recycling Debt

 

Strategy: Backup Appointors of Trusts Strategy: Backup Appointors of Trusts

 

Just updated this one

Strategy: Consider multiple cheaper Properties

 

Tax Tip 168: CGT Strategy for living in an area with no expected capital growth