Anyone rent their IP privately that's owned by their company or trust?

We're considering / probably moving to QLD end of year. My husband refuses to rent. I'd rather put equity into another IP. We could possibly buy an IP & PPOR but it'd be tight.

Can I do this :
- draw down equity from current IP (it's in our personal names), lend to company for deposit / fees etc
- buy another IP in company name
- rent privately (in our names) & pay the company rent
- draw extra equity / buffer to cover shortfall of IO mortgage

-There would be depreciation to consider aswell (to make up shortfall)

Surely it's that easy?! Claim all costs, expenses, etc as a normal IP but I just happen to be living in it.

I've done a few searches on the forum but can't track down any info in this regard. Any ideas if this has come up before? I'm sure this is a strategy used / written about by Chan & Naylor accountants in their property investing books.

Cheers
 
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You can do this, but you have to ensure the rent is at a commercial rate.

For most people, the loss of the PPOR CGT exemption makes it not worthwhile. I think companies aren't entitled to the 50% CGT discount, either, so if you're expecting any kind of reasonable capital growth, the CGT implications would generally outweigh the negative gearing benefits. (For this reason, if asset protection is the motivator, Trusts are more commonly used for owning "PPORs as IPs"; Trusts that distribute to individuals still attract the 50% discount.)

In QLD, note also that companies and trusts have a $0 land tax threshold, so you'd also attract land tax at a rate of approximately 1% of unimproved land value, so about $3K pa-ish.

All in all, I doubt it would be viable, unfortunately.
 
Kath,

In additon to the points by Ozperp above, a property held in a company name may be easily got at by creditors etc. It is most likely more secure to hold in a trust structure.

I may be wrong, but if you are thinking of holding a cf -ve property in a company, in general the company needs to have income to offset the expenses against - it can not pass the losses on to you for your tax claim.

The concept would be similar to say if you had a large deductible expense one year, but had low income, and say (for the sake of illustration) your parents had a high taxable income: you can't simply pass on the expenses to your parents so that they can claim it.

So at the end of the day - YES - it can work, but your company needs to be making money - whether through cashflow +ve properties or some related venture (keep in mind Company is taxed at 30% flat tax).

Beware that if the company provides you the accomodation as an "employee benefit" as different from it's "main line of business", it is likely to lead to FBT.

We too had similar thoughts and looked at this from a financial persperctive (not asset protection) when we were looking at buying our PPOR, and as Ozperp indicated, the benefits of CG TAX FREE outweighed any potential savings that could be made from a company/trust ownership.


Hoping this makes sense.

Cheers,

The Y-man
 
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Thanks so much for your speedy replies.

Have just read the HDT thread thanks Y-Man.

I've printed & am reading the ATO taxation ruling TR2002/18 in this regard.

It is without doubt, since our horrendous experience with our previous tenant, everything we buy from now on will be in a trust. It cost them $26.70 & exhorbitant claims for us to waste 6 months HAVING to prove ourselves innocent. We have experienced the possible risks of not holding assets in trust so due to that, we've now restructured our thoughts, plans & ideas on investing.

Thanks for the heads up on Land Tax ozperp. QLD will be a whole new world to learn about in the property game.

FBT - another item on our accountants list......

No, we're not renting. We're provided with staff accommodation where we live.

We don't plan on selling anything EVER AGAIN! from now on so shouldn't have to worry about CGT.

Looking at the big picture, we plan on eventually having multiple properties and using the Michael Yardney / Chris Gray methods of accumulation & LOE, plus tweaking with a few similar strategies used by keithj, Rixter (LOE/stock market).

Cheers. Will keep reading, learning :)................
 
Thanks so much for your speedy replies.

It is without doubt, since our horrendous experience with our previous tenant, everything we buy from now on will be in a trust. It cost them $26.70 & exhorbitant claims for us to waste 6 months HAVING to prove ourselves innocent. We have experienced the possible risks of not holding assets in trust so due to that, we've now restructured our thoughts, plans & ideas on investing.Cheers. Will keep reading, learning :)................

Hi Kath

Having a trust own the property won't prevent this sort of thing. The tenants can still sue the owner of the property which is the trustee. Trustees are usually indemnified out of the trust assets, which helps a bit, but you can still lose the trust property.
 
Kath

You can rent form your trust but the biggest drawn back is the loss of CGT exemption - but you may be able to class another property as your main residence and thereby not lose this.

The second biggest drawback is that if there is a loss then the loss in the trust cannot be used to offest you own personal incomes. So unless the trust has other income the losses will sit there until a profit is made.

A way around this is the unit trust - which is covered in TR 2002/18. But this will not result in much flexibility and will offer no asset protection if the units are held personally (they are property and potentially up for grabs).

If you are self employed you may be able to divert business profits into the trust and use that to offset the loss and this could save you tax by reducing the business profit you receive.

You may also be able to claim a portion of the rent as a tax deduction for the business if you are running a home office or other.

if you do rent your own house consider asking the owner to supply if furnished. Pay a slightly higher rent and the trust can claim all items supplied - or depreciate.

Don't og overboard and rememebr to try to make every transaction commerical.

Also, I recall reading there may be a rule in QLD in which a house owned by a trust is exempt from land tax if it is your main residence.
 
if you do rent your own house consider asking the owner to supply if furnished. Pay a slightly higher rent and the trust can claim all items supplied - or depreciate.

I'm surprised that this tactic isn't discussed more on this forum. If you buy a new house in a trust name, sell all your existing fixtures & fittings to the trust (at commercial rates) and rent from the trust fully furnished, it can really build up the tax loss. Possibly even more if you rent fully furnished and serviced, i.e. cleaning, gardening, etc.

Of course this strategy is useless if you don't have taxable income coming into the trust, but if you do.....
 
Great replies thanks very much!! Yes I know, I need alot more research & chats to the accountant but there may be a way!

I got very excited at the thought of being able to buy, justify (and depreciate!) that $10,000 jarrah table I had planned on gifting myself after buying the 10th IP.............;) I forgot about the furniture side of things. Moving to QLD we'll be "starting again". We're in staff accommodation so don't have our own furniture such as lounges, whitegoods, etc. Sold it all.

Of course this strategy is useless if you don't have taxable income coming into the trust, but if you do.....
As we'll have quite a sizeable portfolio (gotta THINK BIG! Think future....), I'm sure this will be the case.

Having a trust own the property won't prevent this sort of thing. The tenants can still sue the owner of the property which is the trustee. Trustees are usually indemnified out of the trust assets, which helps a bit, but you can still lose the trust property.
I'm still figuring out how trusts & companies work together to provide more protection. But thanks.

I'm surprised that this tactic isn't discussed more on this forum.
I agree! It's only a new thread so there may be some more replies to come.
 
Hi, FBT should not be an issue if everything is done at arm's length.

Depreciating furniture held by the trust is an excellent suggestion. Just make sure that the rent is at the appropriate level for a furnished property, not just ordinary market rates for unfurnished rentals.

HDT's do still work if structured correctly. That's a big if. Perhaps Terry is talking from a finance perspective though as this seems to be his area of expertise rather than accounting. In which case he may be right as many banks are not so friendly to these structures after the GFC. Hopefully they will lighten up in future.
 
Hi Dr J

Yes, i was a bit vague. HDTs can and do still work, but not the way they were promoted a few years ago. They don't offer the flexibility the were once thoguht to offer. eg. the deed must be worded in such a way that the unit holder must get all the capital gain if they are going to be claiming the interest on the loan to buy the units. ie they must operate as unit trusts.
 
"Trust Magic"

I've finally bought & downloaded Dale Gatherum-Goss' Trust Magic. I highly recommend it for those who are stumbling with understanding trusts. It's great & easy to read. I especially love his comment of "Magic, huh?" after each new strategy and every few pages. Makes me feel as though he was just as excited writing it as I was reading it!

Further to my original query re being able to claim your PPOR as an IP, it seems to be as easy as :

- buy PPOR in family trust
- pay commercial rent to the trust (fully furnished of course)
- trust claims interest on the mortgage & bills, expenses etc

We'll never sell again so don't need to worry about CGT exemptions.

"May / might" have to pay Land Tax in QLD if held in this structure. Still checking this bit out : http://www.osr.qld.gov.au/land-tax/exemp-reb-land-tax/index.shtml
 
We'll never sell again so don't need to worry about CGT exemptions.

"May / might" have to pay Land Tax in QLD if held in this structure. Still checking this bit out : http://www.osr.qld.gov.au/land-tax/exemp-reb-land-tax/index.shtml

If you're never going to sell (ie 20 years+) then it's virtually certain that the tax laws in this area will change, which will affect your structure. Either at a state or federal level or both.

I'm not saying it's a bad idea, far from it if your situation suits, but do expect the state or federal government to hit you at some stage, ESPECIALLY with land tax on a property held in trust.
 
Also note guys, (assuming a family trust) that if you are making a loss in the trust, and your not flowing seperate income into the trust a taxable loss will build up in the trust.

When you went to sell the property, the trust capital losses MAY apply to offset part of the gain (assuming its not ur ppor). So say you amassed $50k of rental losses over a 10 year period, in which time the property had a 120k gain. When you sold it, the $50k may reduce your $100k resulting in a taxable profit of $70k. You would then get the 50% discount on this, so a taxable gain of only $35k would be made (to be distributed to anyone)

Opposed to being purchased on in your own name, you wouldnt be able to claim the rental losses and you would end up with a taxable profit of $120k (or $60k after discount)

If you are using the 6 year rule to claim your ppor exemption else where, you have ended up with a tax free investment (being your previous ppor you are using the year rule on) as well as discounted capital gain of $25k. Holding both properties in your name would mean you miss out on the $25k deduction.

Just another senario to think about...
 
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