All Topics / General Property / Should a property be bought under a company name for investment?

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  • Profile photo of wes2008wes2008
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    @wes2008
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    Hi,I have my own company that generate regular income, which is registered as pty ltd. I have been thinking of buying an investment property and would like to buy more in the future. I am not sure whether I should use my own company to buy the property or buy it under my own personal name. In regards to tax deduction benefit, loan finance, limitation, any advice on which is the best path? Pros and Cons?

    Thank you in advance.

    Cheers,

    Wes

    Profile photo of Tysonboss1Tysonboss1
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    No you should not buy under your company name,

    1. If you do any capital gain under a company structure  will not get the 50% capital gains tax discount as you would if you held it in a trust, or your own name.

    2. any property that is held under the company name will have no protection if any other business held by that company go belly up and creditors go looking for assets to seize, the main reason you buy or build a business under a company name is to protect your other assets right, so why place a property under the company name where it is not protected.

    Profile photo of blueheelerblueheeler
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    The Boss is absolutely right, set up a trust "property investment trust" with

    1.Asset Protection

    2.Losses claimable by beneficiary or unit holder

    2.Possible land tax concession available

    4.Profits distribution at trustees choice

    Unlike most trust you can claim tax deductions "negative gearing" But before you jump into something like this, seek help from an accountant who knows all about trust. Good luck.

    Profile photo of TerrywTerryw
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    I also would suggest it is not wise to buy an appreciating asset in a company as you lose the 50% CGT reduction for assets held over 12 months – which could cap your tax at half of the top marginal rate of 46%. 23% is less than the company rate of 30%.

    And you certainly should not buy in the same company you trade with. Businesses are often sued, and this will place the properties at risk.

    I would look at trusts, probably in your situation a discretionary trust. Losses cannot be offset against no trust income, but being self employed, you may be able to structure it so your company profits can flow into the same trust offsetting losses.

    Blueheeler, losses cannot be be claimed by a beneficary. Unit holders may be able to claim a loss by borrowing to buy the units, but to enable this to happen there seems to be too many restrictions required for the ATO to accept it.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Profile photo of blueheelerblueheeler
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    I also would suggest it is not wise to buy an appreciating asset in a company as you lose the 50% CGT reduction for assets held over 12 months – which could cap your tax at half of the top marginal rate of 46%. 23% is less than the company rate of 30%.

    And you certainly should not buy in the same company you trade with. Businesses are often sued, and this will place the properties at risk.

    I would look at trusts, probably in your situation a discretionary trust. Losses cannot be offset against no trust income, but being self employed, you may be able to structure it so your company profits can flow into the same trust offsetting losses.

    Blueheeler, losses cannot be be claimed by a beneficary. Unit holders may be able to claim a loss by borrowing to buy the units, but to enable this to happen there seems to be too many restrictions required for the ATO to accept it.

    Terryw
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    A property investment trust exist and you can offset against your property,  this trust is the only one. Check with the ATO. This trust is new to the system and it is legal.

    Just trying to point out the facts about trust, sorry if I've offended you in any way, it wasn't intentional.

    Profile photo of TerrywTerryw
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    Hi Blueheeler,

    If you are talking about the Chan and Naylor one, then I think this is a hybrid trust with a few modifications. Losses for these still cannot be distributed. It works like a normal hybrid trust – interest is claimed by the unit holder and the trust therefore makes a profit which can offset other costs such as depreciation, council rates etc. This trust has been out a few years already, but I am not sure if there are any private rulings regarding this – this would be the only way to check with the ATO its viability.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Profile photo of wes2008wes2008
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    Thanks everyone.   Really appreciate those advices.

    Profile photo of blueheelerblueheeler
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    Hi Terry, its a property investment trust, not hybrid. Yeah, totally agree, firstly confirm with the ATO.

    Profile photo of TerrywTerryw
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    Hi Blueheeler

    I think these PITs are jsut hybrid trusts. ie a discretionary component and a unit component in the same trust.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Profile photo of blueheelerblueheeler
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    You are absolutely right, the only dif is the land tax concession.

    Profile photo of TerrywTerryw
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    blueheeler wrote:
    You are absolutely right, the only dif is the land tax concession.

    Chan Naylor also claim their trusts are able to last more than 80 years.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Profile photo of wes2008wes2008
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    I am looking at setting up a "Property Investor Trust", I heard that this trust the Losses are claimable by beneficiary.  If you place yourself as beneficiary, does that mean you can offset the losses against your personal income?  Anyone set up this trust before, can share some light? 

    Thank you.

    Profile photo of albatrossalbatross
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    Hi TerryW and BlueHeeler
    Can you please tell me if the Taxation Alert at http://law.ato.gov.au/atolaw/view.htm?docid=TPA/TA20011/NAT/ATO/00001 deflates the possible benefits you have written about?
    Thank you for your informed input.

    Profile photo of buypropertybuyproperty
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    Property investment is considered a lucrative business option. More and more people are buying investment property in order to earn revenues continuously. With property value rising over time, your investment will help attain capital growth.

    Profile photo of shevangshevang
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    I have a property investor trust (PIT) and company trustee from Chan Naylor. I do not recommend them as we are having all sorts of problems with obtaining more finance. Banks do not like hybrid trusts – let me tell you!!! Banks were picky with hybrid trusts before the credit crunch now even pickier.  Ended up getting finance for the 1st invt property using the PIT etc but were limited to 2 lenders at the time, maxof 80% LVR and a higher penlty interest rate/ exit fees etc

    We spent over $3000 to get the PIT and company name and will not be using them going forward, going bank to individual names only for everything for now.  regards, Angela

    Profile photo of TerrywTerryw
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    albatross wrote:
    Hi TerryW and BlueHeeler
    Can you please tell me if the Taxation Alert at http://law.ato.gov.au/atolaw/view.htm?docid=TPA/TA20011/NAT/ATO/00001 deflates the possible benefits you have written about?
    Thank you for your informed input.

    Hi B

    That alert is specifically about unit trusts, and it doesn't look like the ATO favours them!

    There are other alerts, IDs and tax rulings and private rulings on various hybrid trusts on the ATO site. They don't like them if the trustee has discretion on who to give income to. e.g. you can't just get the spouse with the highest income to claim the loss for buying the units if they are not guaranteed all or most of the income from the trust.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Profile photo of TerrywTerryw
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    shevang wrote:
    I have a property investor trust (PIT) and company trustee from Chan Naylor. I do not recommend them as we are having all sorts of problems with obtaining more finance. Banks do not like hybrid trusts – let me tell you!!! Banks were picky with hybrid trusts before the credit crunch now even pickier.  Ended up getting finance for the 1st invt property using the PIT etc but were limited to 2 lenders at the time, maxof 80% LVR and a higher penlty interest rate/ exit fees etc

    We spent over $3000 to get the PIT and company name and will not be using them going forward, going bank to individual names only for everything for now.  regards, Angela

    Hi Angela.

    The problem is that the property is owned by the company and the loan needs to be in the name of an individual to get the tax deductions. This makes it a third party loan which most lenders don't like these days. St George was one that did allow it.

    You could probably still use your trust as a standard discretionary trust by buying in the company name with the loan in the company name too. You just couldn't offset any losses against personal income.

    Have you encountered any problems with the claiming of interest on the loan used to buy the units of the trust?

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of AAZAAZ
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    shevang wrote:
    I have a property investor trust (PIT) and company trustee from Chan Naylor. I do not recommend them as we are having all sorts of problems with obtaining more finance. Banks do not like hybrid trusts – let me tell you!!! Banks were picky with hybrid trusts before the credit crunch now even pickier.  Ended up getting finance for the 1st invt property using the PIT etc but were limited to 2 lenders at the time, maxof 80% LVR and a higher penlty interest rate/ exit fees etc

    We spent over $3000 to get the PIT and company name and will not be using them going forward, going bank to individual names only for everything for now.  regards, Angela

    Hi Angela

    Your right, banks don't generally like lending to trust structures and you normally pay a higher interest rate to access funds. We personally have had no problems securing funds using our hybrid discretionary trust where our company is the trustee only and where we personally guarantee the loan. We like to keep any investments completely separate to our company.  Finding a property savvy finance broker who understands trust structures helps.  We have just secured funds for a development site through RAMS/Westpac using our trust and it was a very smooth transaction.

    Regards
    Adrian and Amber

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    Profile photo of RuslanRuslan
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    Hi there,

    I hope all is well

    I thank you all for the information you have provided above. However, my questions are still not answered;

    Firstly, why not to buy an investment property and set it up as a business separately to whatever you do?
    I ask this because I read in the book where advisor said that it is dangerous when you put your property
    under business in which you work but good if you set a separate business solely for your investments.

    Secondly, what it is the best structure to buy an investment property?
    I worked in property management before, and we had property owners as Pty Ltd and Trusts.
    Which is one is the best?

    Finally, my partner owns a property and I now want to invest into the same property in which we live.
    We want to make it an investment in the future – is that possible for us to change ownership and make it our investment property not home?
    As far as I know that taxation is totally different when you buy investment property or as owners occupiers?

    Thank you for this opportunity

    Profile photo of TerrywTerryw
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    Ruslan wrote:
    Hi there, I hope all is well I thank you all for the information you have provided above. However, my questions are still not answered; Firstly, why not to buy an investment property and set it up as a business separately to whatever you do? I ask this because I read in the book where advisor said that it is dangerous when you put your property under business in which you work but good if you set a separate business solely for your investments. Secondly, what it is the best structure to buy an investment property? I worked in property management before, and we had property owners as Pty Ltd and Trusts. Which is one is the best? Finally, my partner owns a property and I now want to invest into the same property in which we live. We want to make it an investment in the future – is that possible for us to change ownership and make it our investment property not home? As far as I know that taxation is totally different when you buy investment property or as owners occupiers? Thank you for this opportunity

    Ruslan,

    Your question is a bit vage. A 'business' is just a generic term, not a legal entity. Only legal persons can own property. A company is a legal person. A person/company can own in their own right or as trustee for a trust.

    You should not own a property in a company in its own right because:
    1. CGT will be higher
    2. Income from the property will be taxed at fixed 30%
    3. Income from a company does not retain its character. So a CG flowing through to an individual will not remain a capital gain, but will be dividends – which is no good if a person has a capital loss which they could offset.

    Def do not buy any asset in the name of a trading company as if the company fails the asset will be lost.

    Look at using discretionary trust to own property. You cannot say that these are the best structures as what you consider best will be different to what others consider best, but for a property that makes a nice profit these will be hard to beat.

    It is possible to change ownership down the track but you will be up for stamp duty and CGT and legals and new loas etc

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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