All Topics / Help Needed! / Advantages of using a company name.

Viewing 20 posts - 1 through 20 (of 43 total)
  • Profile photo of SargeantSargeant
    Member
    @sargeant
    Join Date: 2006
    Post Count: 31

    Could someone explain to me what the advantages of using a company name to purchase property with a group of people.

    Thanks

    Aslam Sargeant
    [email protected]

    Profile photo of JohnSmithJohnSmith
    Member
    @johnsmith
    Join Date: 2006
    Post Count: 93

    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

    [email protected]
    http://www.inspiredfinance.com.au

    Profile photo of ptnptn
    Participant
    @ptn
    Join Date: 2006
    Post Count: 74

    If you bought a IP in a company with a director and 2 additional share holder. What happen to the IP if you add an additional share holder or you liquate a share holder? do you have to pay stamp duty?

    Thanks

    Regards
    ptn

    Profile photo of MichaelYardneyMichaelYardney
    Participant
    @michaelyardney
    Join Date: 2001
    Post Count: 616

    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


    http://www.propertyupdate.com.au/articles/2/1/The-Tax-Benefits-of-Trust

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

    Profile photo of JohnSmithJohnSmith
    Member
    @johnsmith
    Join Date: 2006
    Post Count: 93
    Originally posted by ptn:

    If you bought a IP in a company with a director and 2 additional share holder. What happen to the IP if you add an additional share holder or you liquate a share holder? do you have to pay stamp duty?

    No. The company is the owner of the property, and shareholders are owners of the shares. Shares can be sold, bought or issued

    Note: you can not just liquidate/cancel a shareholder. He has to sell. In some circumstances you can buy back the shares, but it must be offered to all shareholders, and he does no have to accept. Anyway – all of this is a different story, and there are many branches.

    Michael is correct – it is now more common that the company is used as a trustee. Using a trust gives more protection and a lot of flexibility.

    Regards
    John

    Inspired Finance
    (02) 9944 7776

    [email protected]
    http://www.inspiredfinance.com.au

    Profile photo of grossrealisationgrossrealisation
    Member
    @grossrealisation
    Join Date: 2005
    Post Count: 1,031

    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.

    here to help
    contact me [email protected]

    Profile photo of Bo_D_Bo_D_
    Participant
    @bo_d_
    Join Date: 2006
    Post Count: 36

    if you buy the IP in a company name you wont be entitled to the 50% capital gains discount.

    Michael said it right, its alot easier to the get money out that way.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    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
    [email protected]
    Sign up to my mailing list.
    Just send me a blank email, with “subscribe” in subject line.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of ptnptn
    Participant
    @ptn
    Join Date: 2006
    Post Count: 74

    Sounds good. Thanks

    I like to buy this family trust online. Any advise?

    http://www.lawcentral.com.au/CreateDoc/createlink.asp?docId=17

    My intention is to move one of my IP into this trust.

    We have a family of 5 (including my mother in-law). Hope it’s not going to complicate the process.

    Please let me know your thoughts.

    Thanks
    ptn

    Profile photo of MichaelYardneyMichaelYardney
    Participant
    @michaelyardney
    Join Date: 2001
    Post Count: 616
    Originally posted by ptn:

    Sounds good. Thanks

    I like to buy this family trust online. Any advise?

    http://www.lawcentral.com.au/CreateDoc/createlink.asp?docId=17

    My intention is to move one of my IP into this trust.

    We have a family of 5 (including my mother in-law). Hope it’s not going to complicate the process.

    Please let me know your thoughts.

    Thanks
    ptn

    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

    Profile photo of JohnSmithJohnSmith
    Member
    @johnsmith
    Join Date: 2006
    Post Count: 93

    Exactly what Michael said.

    When you do decide to look for an accountant, don’t just go to anybody – get some references to ones that really understand trusts, as the differences in what they know and don’t know can be huge.

    I can point you to some in Syd, Melbourne, and QLD if you want – email me for their details when you need them.

    Regards
    John

    Inspired Finance
    (02) 9944 7776

    [email protected]
    http://www.inspiredfinance.com.au

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    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
    Parramatta
    [email protected]
    Sign up to my mailing list.
    Just send me a blank email, with “subscribe” in subject line.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of ptnptn
    Participant
    @ptn
    Join Date: 2006
    Post Count: 74

    Thanks guys,

    I don’t want to approach an accountant or a lawyer at it will cost me $$$ just to say hello.

    Thanks TerryW, you’ve given me a bit more confident in buying the family trust.

    Regards
    ptn

    Profile photo of ownahomeownahome
    Member
    @ownahome
    Join Date: 2006
    Post Count: 5

    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.

    Profile photo of Mortgage HunterMortgage Hunter
    Participant
    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781
    Originally posted by ptn:

    Thanks guys,

    I don’t want to approach an accountant or a lawyer at it will cost me $$$ just to say hello.

    Thanks TerryW, you’ve given me a bit more confident in buying the family trust.

    Regards
    ptn

    I bet you that a mistake will cost you more.

    I think you are focussing on small amounts of money and losing sight of the big picture. If you proceed without getting an accountant to sign off on what you do then you are setting yourself up for a fall. Just from reading your posts I doubt very much that you are your own best advisor.

    My Doctor friends have a saying. “Any Doctor who treats himself has a fool for a patient.” and at least they are qualified to give the treatment.

    Lastly can you explain the benefits of using a standard family trust over using a hybrid discretionary trust? If you cannot then please seek professional advice [blush2]

    Simon Macks
    Residential and Commercial Finance Broker
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of ptnptn
    Participant
    @ptn
    Join Date: 2006
    Post Count: 74

    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

    Profile photo of JohnSmithJohnSmith
    Member
    @johnsmith
    Join Date: 2006
    Post Count: 93

    The trust owns the property. What you do with beneficiaries or trustees does not affect who owns the property, and therefore there are no stamp duty issues.

    Regards
    John

    Inspired Finance
    (02) 9944 7776

    [email protected]
    http://www.inspiredfinance.com.au

    Profile photo of ptnptn
    Participant
    @ptn
    Join Date: 2006
    Post Count: 74

    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

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    Originally posted by JohnSmith:

    The trust owns the property. What you do with beneficiaries or trustees does not affect who owns the property, and therefore there are no stamp duty issues.

    Regards
    John

    Inspired Finance
    (02) 9944 7776

    [email protected]
    http://www.inspiredfinance.com.au

    Thats not necessarily true. If you add or remove beneificiaries to a trust, this could cause a resettlement to occur. This is when the ATO deems a new trust to be formed and all the existing trust assets transfered (ie sold) from the old to the new. This means stamp duty and possibly CGT on everything the trust owns.

    What John probably means is the trust deed is worded in such a way that you can just stop distributing to one person whithout having to actually remove them from the trust.

    Terryw
    Discover Home Loans
    Parramatta
    [email protected]
    Sign up to my mailing list.
    Just send me a blank email, with “subscribe” in subject line.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    Originally posted by ptn:

    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

    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
    [email protected]
    Sign up to my mailing list.
    Just send me a blank email, with “subscribe” in subject line.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

Viewing 20 posts - 1 through 20 (of 43 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.