Buying IP's in a Company name

From: Brett Charlton


Hi,

I was wondering what the Pros and Cons are in regards to buying IP's within a Company Structure rather than personally ?
Are there any extra Tax advantages with doing this ?
I have read that a lot of the benefits of buying via Family Trusts have been removed.
I do not currently have a Company structure, but may consider setting one up if it offers extra benefits etc.

BC
 
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Sim

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Reply: 1
From: Sim' Hampel


You really need to speak to a knowledgable accountant - try and get along to one of Dale's "Tax Battles" seminars... he explains various structures very very clearly.

Basically, no real changes have been made to trusts recently, any changes that were proposed were dropped.

Advice I have been given is that owning property in a company name is not a good idea, as you lose both the benefits of CGT discounts if holding personally, as well as losing the asset protection provided by trusts.

The only two realistic choices seem to be hold personally or hold in trust.

 
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Reply: 2
From: See Change


Brett

This has been covered in many previous posts, including in apprentice millionaire guide. Have a search through there.

If you have a chance to get to it , Dale's Tax Battles talk and Notes cover this in detail and are well worth the cost. Check in meeting Point , or on Freestyler.net.au for more details.

Getting your structure correct at the start is important and many people are still using trusts.

see change

it's better to be guided by your dreams than your fears
 
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W

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Reply: 2.1
From: Martin .


I thought the trust thing was clear...

Set up a company as trustee for a trust and the trust owns the IP.

Now the conveyancer tells me the trust can't appear on the title whatever, only the Company can. (Titles office rules)

This does not fit in with what I was going to arrange, as the trust was meant to be the separate entity owning the property - as Sim said - the Company doesn't provide protection.

Was the Conveyancer correct?

ML.
 
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Reply: 2.1.1
From: See Change


Not sure on rules else where

But in NSW the land titles office will register the title as in the name of the trustee, ie the company , and will not register the trust fund as the owner.

On the purchase contract where the purchaser details are entered it should be documented that the Trustee( company ) is acting as trustee of the xyz family trust.

This provides the documentation that the trustee was acting on behalf of the trust fund , and not on it's own behalf.
The advice I've received is that this provides the documentation that you need.

see change

Disclaimer: I'm not a lawyer or accountant so you should check with your accountant/ solicitor(s) before acting on any thing I've said.

it's better to be guided by your dreams than your fears
 
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Sim

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Reply: 2.1.1.1
From: Sim' Hampel


My information shows that See Change is correct - don't forget that the trust does not actually exist as an independent entity. The properties are held "in trust" by the trustee... the trust does not actually hold title on the property.

See Change was also correct in that documentation is important to prove that the property is held in trust and documenting it on the sales contract is a good way to do that.

Once again, please see a suitably qualified solicitor and/or accountant for your advice, this is not something you want to get wrong.

 
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Reply: 2.1.1.1.1
From: Glenn Mott


My question is that if a trust does not exist, why does it have a tax file number and require tax returns to be done each year?

Glenn
 
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Reply: 2.1.1.2
From: Simon H


Just like to add to what See Change posted regarding NSW Land Tiles Office (now known as Land and Property Information).

'But in NSW the land titles office will register the title as in the name of the trustee, ie the company , and will not register the trust fund as the owner.'

Reference to a trust, e.g. a superannuation fund, cannot be recorded in the Register, see section 82(1) Real Property Act 1900. Reference to it must be deleted from the dealing and the deletion verified (alteration stamped by the Office of State Revenue).

hope this helps
Simon H
:)
 
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Reply: 2.1.1.1.1.1
From: Duncan M




Given that effectively the Trust owns a specific property, how does the
Trustee avoid incurring Land Tax on the assets they are holding in Trust,
particularly if the Trustee is acting for more than one trust?

Duncan.
 
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Reply: 2.1.1.2.1
From: See Change


Glen , Duncan

If every thing was straight forward and logical we wouldn't need accountants and Lawyers to explain and organise things for us.

see change

it's better to be guided by your dreams than your fears
 
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Reply: 2.1.1.2.1.1
From: Duncan M




And everyone would be rich..so how does the Trustee avoid the Land Tax
liability given that they may have their name on many titles..

Duncan.



-----Original Message-----
From: propertyforum Listmanager
[mailto:listmanager@bne003w.webcentral.com.au]
Sent: None
Subject: Buying IP's in a Company name


From: "See Change" <see_change@hotmail.com>

Glen , Duncan

If every thing was straight forward and logical we wouldn't need accountants
and Lawyers to explain and organise things for us.

see change

it's better to be guided by your dreams than your fears



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Reply: 2.1.1.1.1.1.1
From: Miakat .


Duncan,

The trustee does not avoid land tax, and trusts do not have any land tax exemptions that individuals do. One disadvantage perhaps of using a trust. I weighed it up and still decided to go with a trust as the advantages outweigh the disadvantages for me.

Mia
Newcastle Freestyler Coordinator
 
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Reply: 2.1.1.1.1.1.1.1
From: Duncan M




OK, I'm not sure if I've phrased my question correctly...

There are sliding scales of Land Tax.. the more Land you own the greater the
proportion of Tax you pay..

If Company X is Trustee of Trust123 and Trust234 and Trust345, how is the
calculation of Land Tax applied given that individually, had these Trusts
paid the tax, they would have paid less than the combined total of all of
the Trusts..




Duncan


-----Original Message-----
From: propertyforum Listmanager
[mailto:listmanager@bne003w.webcentral.com.au]
Sent: None
Subject: RE: Buying IP's in a Company name


From: "Miakat ." <miaclapton@ozemail.com.au>

Duncan,

The trustee does not avoid land tax, and trusts do not have any land tax
exemptions that individuals do. One disadvantage perhaps of using a trust. I
weighed it up and still decided to go with a trust as the advantages
outweigh the disadvantages for me.

Mia
Newcastle Freestyler Coordinator



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Reply: 2.1.1.1.1.1.1.2
From: Waverly Bay


Miakat - this is the position in NSW -- but it may not be the case in other States.

A common way to minimise land tax in trust holdings is to set up multiple trusts (ie different Corporate trustees) to hold the IPs... which will allow the taxpayer to take advantage of the land tax free thresholds (if it is available under the state's stamp duty legislation)

Cheers

Waverly
 
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Reply: 2.1.1.2.1.1.1
From: Waverly Bay


One more point for those interested...

By holding a property in a company as opposed to a discretionary trust, a taxpayer not only loses out on the CGT discount .. . . .. but also the opportunity to claim the non-cash deductions (eg: depreciation). Such non cash deductions are timing benefits only....so traders may cease reading this post if they wish !

In a company structure, a shareholder can not claim the benefit of such non-cash deductions. Instead, these non cash deductions pass through to the shareholders as an "unfranked" dividend which is taxable at the marginal rate of the shareholder. On the other hand, a trust is a "flow through" entity which allows such non-cash deductions to effectively flow through to the beneficiary, and therefore to be deductible in the beneficiary's tax return.

This difference in treatment for non cash deductions was to be eliminated in the Ralph reforms for the taxation of trusts as companies (this aspect of the ralph reform is currently on hold).


Cheers

Waverly
 
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Reply: 2.1.1.2.1.1.1.1
From: Kevin Forster



So WB, what you're saying is that companies are unable to claim depreciation? That seems odd to me when companies depreciate plant and equipment all the time.

Whether the company pays out franked or unfranked dividends is dependent on whether tax has been paid on it or not.

Kevin
 
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Reply: 2.1.1.2.1.1.1.1.1
From: Waverly Bay


Hi kevin

Companies can claim tax depreciation.

And yes, the dividend is franked if tax is paid on the profits from which the dividend is paid.

Here's a numerical example:

Rent income derived by Company: $100
Tax depreciation : (100)
Taxable profit: 0
Tax paid by company: 0

1) Dividend paid of $100 cash to shareholder arises from profit which is not taxed.

2) Unless there is excess franking credits lying around (unlikely if the company is purely a holding company for properties), the dividend payable to the shareholder is unfranked.

3) Therefore the shareholder lodges a tax return declaring the dividend as income which is subject to their marginal rate of tax.....with no franking credit relief.

Uncle ralph (I notice people of prominence on this site seem to be given the rather odd title of Uncle)..... did not like this anomaly of treatment for "non cash deductions" between trusts and companies...and had his proposals to tax trusts as companies gone through, most trusts would lose their flow through status.


Cheers

Nephew Waverly
 
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