Advantages of using a company name.

The only one I can think of is

Only the director/s of the company have to go on the loan application. Shareholders do not. If you had a couple of full docs and a couple of Low docs, and the full docs could service the loan, you can get better rates and lvr if the full docs are the directors.

Companies may also pay less tax, but this depends on everyones circumstances, and what is your overall investment strategy for using the company.

Regards
John

Inspired Finance
(02) 9944 7776

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http://www.inspiredfinance.com.au

The most common use of a company purchasing a property is when it is acting as trustee of a trust. This structure gives maximum flexibility, as a company owning a property in its own right is a very unusual occurence.

Search other threads here as to the benefits of owning property in a trust or have a look at these 2 articles.

http://www.propertyupdate.com.au/articles/1/1/Should-a-Property-be-held-in-a-Trust%3F

Michael Yardney
METROPOLE PROPERTIES
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hi
there are a couple of reasons for using a company instead of in your own name and these are only examples and are not to be used for any form of investing.
1. yes the company is usually used with a trust and depending on the type of trust will depend how and why you want to distribute profit,loss,equity or unit holding and thye are all very different and there would not be enough room or time to go into the difference and you will need to read up on them.
2. if you use a company trust structure, and you set them up as individual entities the borrow in there own right so they are by definition not cross collateralised even if you equity lend from one to the other they are not cross collateralised again there is not enough room to explain this ad again you need to read up on euity lending.
3.using the company trust structure(micro structure) and separate small minor structures it limits your liability for attack of your whole investment portfolio so you limit to that micro structure only.if you puchase in one entity the whole porfolio is at risk.
4.serviceability is not an issue if its a new micro structure as the lender is lending to the micro structure and you are quarenteeing that the micro can service its debt as its new it couldn’t have a history so the lenders are going off your quarentee and if you tgerm deposit 12 months worth of interest then there is no serviceability issue.if you buy in your name they look at all your properties and see if you can service all the properties the micro does not have this problem.
5. by using a micro structure and set up correctly the company can distribute profits or losses depending its structure that can be very benificial from a tax point of view this is nt the case in your own name.
6. if you die the whole porfolio is thrown in the air like a pack of cards if in your own name but if in a micro structure nothing changes the only change is the unit holders the property stays the same as a company can’t die it can wind up or stop trading but its not reliant on you.
this is not any kind of advice and is for information only.

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The main benefit I can think of is the limited liability issue. You would be far better looking at setting up a trust structure.

It may be possible for the shareholders of a company to transfer shares without stamp duty, but the offices of state revenue have clamped down on this and now if the company is considered land rich, then stamp duty will apply. This may vary from state to state as stamp duty is a state based tax.

Terryw
Discover Home Loans
Parramatta
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This post shows that you really must seek proper accounting advice and not just get information from a forum.

There are huge implications in moving a property across into a trust including capital gains tax payable and stamp duty payable.

There’s lots to learn about trusts. Do this from the forum or by reading good books but then get proper accounting advice for your circumstances and don’t be afraid to pay for it.

A great book to read is Dale Gatherum -Goss’ Trust Magic
http://www.propertyupdate.com.au/pages/Trust-Magic

Michael Yardney
METROPOLE PROPERTIES
Publisher of Australia’s leading property e-magazine.
Join over 17,000 readers.
FREE subscription http://www.PropertyUpdate.com.au

I agree with Michael, that you should get proper advice. But for what is it worth, I have two of those trusts from LAwcentral.

Terryw
Discover Home Loans
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From a purely investment point of view a company is a seperate entity. This means it has its own borrowing power seperate to the directors and shareholders. When low doc loans.. LMI are invloved you can effectively double your borrowing capacity before you need to source private finance or higher rate non-LMi low doc loans.

Your maximum tax rate is 30%. If you are doing sub-div, flips or reno with purchase to sale under 12 months you are paying only 30% as opposed to most likely 48.5% tax in individual name. So you use the company for short term projects and personal or trusts for longer term to enable the 50% CGT saving.

Another benefit is a company does not need to pay its tax bill unti March the following year after end of tax year. So you get an extra 6 months to utilise the “tax” money for investment and make more profit just for the fact you have a company versus personal or trust.

If you make 40-100% per annum on your money that equates to big dollars.

Please note: Something people don’t tell you about Family Trusts is they are not aseperate legal entity for borrowing. A company as a trusttee is but people don’t normally use these companies for business or investment so therefore can’t borrow as how can they say a $2 company earns $200,000 to put on a low doc declaration.

“Legal protection” as Family Trusts are touted as the bees knees for is only worthwhile if you have assets to protect.

If you can have $2m in property with a company but only $1m with a Family Trust which situation do you want if your property goes up 10%.

Unfortunately it takes many hours or rading and talking to advisros, legal, accountant etc.. to sift through the legal jargon to get to what works for your investment strategy.

At the end of the say you need to have the good knowledge about money, finance, tax, legal protection, property law, contract law etc.. because as the saying goes a fool is easily parted with his money. People are to advise you… only… not tell you what to do. however how can you decide what to do without the correct information.

That is why investing is not for the faint hearted it takes hard work.

Hi Ownahome,

Your advice is very valuable. I am still pondering between a company (expensive setup and ongoing) or a family trust. I need to know the best way forward given the following scenario:
My family of 4 + my mother in law (5 trustee) . We buy an IP using this new family trust. If for some reason, we decided to remove my mother in law out of the family trust, do we pay stamp duty on the IP or are there some complex issue. Further more, if I add my father into the trust which already has an IP; what complication am I in for?

Kind regards
ptn

Awesome,

Another question, if my mother in law is not a permanent resident in Australia, can she still be a trustee? IE. She is a tourist in Australia?

And the same question goes for a company shareholder?

Thanks

Kind regards
ptn

You have to seriously consider many issues.

One is loans. If you have 5 trustees, then the loan will be in 5 names. This will affect borrowing capacity for subsequent borrowings. Maybe consider one or two trustees – leave off those without an income. The others can still benefit and contribute.

Terryw
Discover Home Loans
Parramatta
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