I have a spare cash lump sum in my company ($50,000) which was earned this year.
I do not wish to take it all out as a salary.
If I were to use this money as a down deposit for a property what would be the best way so as to pay as little tax as possible.
I have also been thinking about moving into the house if I buy it through my company and simply pay rent to my own company.
How much would be the minimum rent in percentage below market rent that I would have to charge myself – .
Any other ideas in relation to possible investment options when it comes to the 50,000 are highly appreciated.
vegemite I would be careful buying real estate in the name of your trading company (or any company for that matter). Remember there is no CGT relief for a company.
Could you not pay your company tax, and say, lend what’s left to your family trust which could buy a property that you rent from it?
MelJBMember@jbJoin Date: 2003Post Count: 17
I would consider leaving the funds in the company & buying the property in the company name (provided the company doesn’t operate a business). Company has no 50% CGT discount, however, if you are personally 48.5% the comparative rate of tax on CG is 24.25% vs 30% for the company which isn’t enough difference to worry about – particularly when you factor in the cost of distributing the $50,000 out as a dividend which may or may not be franked. See your advisor to clarify but on the face of it use your company.
If you buy in a company name, you are also subject to more risk than using a trust. With a trust you have many more options of utilising asset protection, and tax minimisation strategies. If you have other beneficiaries that earn very little, when selling you could possibly be subject to very little or no CGT, whereas with a company you do not have this option as easily. Of course, you could bring more shareholders on board to receive the dividend, but you can’t then pick and choose which shareholders get what distribution.
Many thanks for all the replies.
My company operates as a business and is ‘attached’ to a family trust.
I do not intend to deal in any ‘grey’ areas but at the same time I would like to minimise the tax and it is only 6 months left of this financial year so I intend to be out early.
Someone adviced me to buy a property and simply move into the house and pay my company rent.
Not sure if that is the best way.
At the same time my ‘gut’ feeling tells me that there will be A LOT of buying opportunities within the next 12 months as I strongly believe that the RB will increase the interest rates more than we all expect.
Any comments are most welcome.
Many thanksforextraderMember@forextraderJoin Date: 2003Post Count: 23xyzzyParticipant@xyzzyJoin Date: 2003Post Count: 178
Have the company pay tax on it at 30% and pay yourself a fully franked dividend perhaps?
Failing that fast cars? Slow racehourses?Steve McKnightKeymaster@stevemcknightJoin Date: 2001Post Count: 1,729
I’d recommend paying an accountant to flesh out your options with you.
Depending on your situation, you might be able to gain some tax advanges by paying a dividend rather than taking it as a salary.
I think you really need some advice because:
1. It is not wise to operate a business and act as a trustee in the one company.
2. As outlined in WealthGuardian, it is not wise to buy appreciating assets in a company.
3. If you buy the house in your comapny and pay rent then it needs to stack up like any other investment. You may find that it is very capital intensive and a low CoCR.
Remember that success comes from doing things differently.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
Success comes from doing things differently
Thanks everyone for your advice.
I will have to do some serious thinking before I ‘take action’.
Merry Xmas EveryoneshowmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103
Still on the topic of company funds.
How would a loan from one’s wife’s company to myself for the purpose of investing be set up?
Must a market rate of interest be paid?
I was thinking I would rather pay her 7% than the bank, and she would be getting a superior return than from the bank as well.
I think there is a ‘benchmark’ rate set every year by the ATO on these sort of loans, so yes I would imagine it would be around the 6-7% mark. An accountant or the ATO could tell you.
As for how to set it up, I guess it depends whether it will be secured, or unsecured – perhaps check out your bank’s mortgage and copy the relevant bits, or ask the accountant/solicitor for advise. You would need to ensure that the company is being run ‘properly’ so that the director’s don’t get in the s**t.
MelshowmethemoneyParticipant@showmethemoney-2Join Date: 2003Post Count: 103
ClivezizParticipant@zizJoin Date: 2002Post Count: 90
I would try and do it through a hybrid trust. This is a discretionary trust that also has units as in a unit trust.
The ability for you to channel the money into a trust will be dependent on whether the trust can become a shareholder of the company without to much CGT problems.
With a hybrid trust the 50k will become the seed funds yoy take out another loan personally and buy units in the hybrid trust, the loan is garaunteed by the trust aand the property.
The advantages of this structure is that any loses can still be attributed to you out of the trust and the CG can be forwarded to you to obtain the CGT advantagoues.
So all up an ideal structure(for the moment).
You will need to talk to your friendly accountant or you can talk to Nick at http://www.strategicwealth.com.au/
who set up one of these for me recently.
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