I have a question on how to best achieve a tax effective strategy on capital improving a property.
Scenario
A property is held in an company structure and has the potential to be subdivided into two townhouses. The property is owned 100% by the company. Is it possible to subdivide the property and sell one townhouse to myself and mortgage the full amount of the land value plus the capital improvement value so I can maximise the negative gearing on the townhouse.
Therefore the comany has received the full amount for the property and this money used to pay for the company owned townhouse. once the town house is built we can move into the fully paid off townhouse on the company side and have the full mortgage on the property that is solelly in my name for maximum negative gearing.
Any thoughts on the merit or legaility of such a scenario??
Here are my non accounting views.
If the property is sub-divided there will be 2 separate titles. Each owned by the company, with half of the loan attributed to each. If one townhouse is sold to yourself, then the company will receive funds. It should use at least part of these funds to repay the existing loan – the half that was sold.
It is like borrowing from your LOC to buy shares. Once you sell the shares you can't just put the money into your home loan and keep claiming the interest on the money originally used to buy the shares – as the shares don't exist anymore. It may be different if the company you had shares in went under and you still had a loan.
Another problem is the bank's security. If you sell one property, then the company remaining property will not be worth enough to keep the original loan size.
Am I reading your post right?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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