Companies and IP's

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From: Wayne Addison


I am negotiating my first IP and was thinking of purchasing it in a company name. I already use the company for IT contracting so the setup and admin of it is already in place. My reasoning is that by receiving company revenue from 2 sources allows me to split my IT income with my wife. It also keeps our personal finances a lot neater. Are there any downsides?

I am also trying to find out the purchase price of other units in the same building. Is such info available to the general public?

Any advice most welcome.

Wayne.
 
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Reply: 1
From: Cathy Whitfort


You can find out previous sales through your local council (I'm in Melbourne). Sorry I can't remember which department but once there you ask for a particular street and number and you can look and write down any information that you like. They have listings of all sales. You will be charged a fee. From memory I think it was less than $10 (in my council Boroondara in Melb).
Sorry I can't help with companies because I'm still learning all the ins & outs of ours.

Cathy
 
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Reply: 2
From: Rolf Latham


Hi Wayne

re sales data if your after NSW I can help with that

www.asapfinancial.com.au

Ta


Rolf
 
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Reply: 2.1
From: Guy Wood


Hi Rolf,
What exactly do you do? (re sales prices?)
Guy
 
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Reply: 2.1.1
From: Donna Larcos


Hey Rolf
Have you found Vincentia yet?
Donna
 
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Reply: 3
From: Sim' Hampel


The advice I have been given is not to hold IPs in the name of a company that trades. The reason was something to do with liability - it is relatively easy to wind up the assets of a company and take them from you if something goes wrong in the business or something like that.

I beleive the suggestion is to hold the IPs in a trust that has a non-trading company as trustee. You would of course be a director of that company, and I don't think there is any reason why your existing company could not be a beneficiary of the trust.

Anyway, I am not qualified to give this type of advice, and I strongly suggest that you speak to a suitably qualified accountant about this.

 
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Reply: 4
From: Dale Gatherum-Goss


Hi Wayne

We normally advise people not to hold investment assets in your trading entity. Otherwise, you risk losing your business and your wealth assets.

The VERY wealthy people have a second, or third (most I have seen is 25 trusts) entity which holds investment assets side by side to the trading entity.

You can still use the dual structure to reduce tax very, very easily.

I hope that this helps

Dale

Ps
 
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Reply: 4.1
From: Damien Dupont


Hi Wayne,

I agree with Sim and Dale and wouldn’t personally hold any assets under a trading company.

However, if you did, the ATO will likely class the income stream from your IP differently to that from your IT contracting. If you are unable to income split with your wife, it will be because your contracting income is currently classed as PSI – Personal Services Income, i.e. derived through your own personal efforts and skills. Since the implementation of some of the Ralph Law recommendations, PSI income cannot be retained in the company to be taxed at the company rate – it all has to be paid out to you personally in the given financial year be it via salary, directors bonus, or dividends (see taxation rulings IT 2121, IT 2503, and IT 2639).

Even if the IP income equates to greater than 20% of the company’s income, you still won’t satisfy the 80% rule for separate sources of income, as your IP income will not be classed as PSI income. Your contracting income will still not be able to be split with your wife (unless you structure your company as a PSB – Personal Services Business – but this is not the place to go into that. E-mail me if you want more info on the ATO tests that apply). However, if your wife is a shareholder or director of the company, you could pay some or all of the IP income out to her. Speak to your accountant about the possibilities.

Dale,

Sorry to be pedantic, and correct me if I’m wrong, but to my knowledge a Trust is not actually classed as an entity? I guess you only used the word in a casual sense, but as you are an accountant I was somewhat surprised you did?

Sorry, not picking on you... I’m just a bit pedantic by nature...

Damien
 
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Reply: 5
From: Kevin Forster


Wayne

I'm in a similar position to you working as a contractor in the IT industry. Even if you get 20% from alternate source the ATO can still deem your company as a personal service company ie. you perform the IT work in the company. This means that all your IT income can be deemed to be your salary and then the houses can be deemed to be split which ever way.

The method we used was to put the titles of the IPs in my wife's name. This means that she gets the income. The IPs are positively geared.

The 80/20 rule cannot be applied to different forms of income - earned income and passive income.

If you do have employees then obviously the 80/20 rule would not be applied.

Hope this helps

Kevin
 
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Reply: 5.1
From: D R


Hi There,

I too am a IT contractor and to the best of my knowledge whatever income you earn from contracting has to be paid directly to you as salary as per the Personal Services legislation. Irrespective of whether you have a company setup or not.

You can not income split. Any money earned from IPs irrespective of how much, must be passed thru the company separately from your IT contracting. You can not escape it.

Cheers


DR
 
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Reply: 2.1.2
From: Rolf Latham


Hi Guy

WHat is it that you would like to know. I provide data of all types.


Ta



Rolf
 
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Reply: 4.1.1
From: Dale Gatherum-Goss


Hi Damien

Yes, I was trying to keep the answer as simple as possible. Technically speaking, a trust is not an entity, as you correctly pointed out. Thank you.

Dale
 
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Reply: 5.1.1
From: Wayne Addison


Thank you all for the info. Hope I can return the favour.

Regards,
Wayne.
 
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