Do I NEED to set up a company?

[azzae89]

I've been reading a RE investment book recently and they advise to set up a company structure when starting out in property investment.

Why would I do this? And do I need to? I have an ABN but only as a sole trader..

My guess is so that it protects my personal assets? Not entirely sure though.

Any help is much appreciated!

Thanks.

 

[Terry_w]

I've never read anything which suggests a company be used to own property.

There would be little protection if the person is sued and is owning shares in the company.

Little tax flexibility. More tax possibly as companies pay 30% flat tax.

Why not look into trusts instead.

 

[AXXO]

Also companies do not get the 50% general exemption on Capital Gains. Not good for holding appreciating assets.

 

[Propertunity]

Also Co.s don't get a Land Tax threshold (neither do most Trusts). What "RE investment book" have you been readin??

 

[devank]

Business is far more risker than owning IPs. I would look to move your business under proper trust/company setup to protect your IPs. Just read through all TerryW's posts... you will understand

 

[RPI]

Hi
Was it a US book, they have a type of company that suits.

NSW discretionary trusts also have land tax issue, Qld not so much.


If buying in NSW see TerryW for advice.

regards

 

[Terry_w]

Also Co.s don't get a Land Tax threshold (neither do most Trusts). What "RE investment book" have you been readin??

PU,, I think companies do get the threshold in NSW - but I have never looked into this because no one uses companies to buy land.

 

[Propertunity]

PU,, I think companies do get the threshold in NSW

Yes, you're right - they do.

.... but I have never looked into this because no one uses companies to buy land.

Some company structures are used in some instances to buy land - I see it quite frequently.

 

[Terry_w]

Yes, you're right - they do.

Some company structures are used in some instances to buy land - I see it quite frequently.

I went to a financial planning seminar late last year where they ran through a strategy of using a company. If a high income earner invested using a company and then just retained the profits in the company until they were on a lower rate of tax, such as in retirement then it could result in tax saved as they would be able to claim franking credits later on for the tax the company had paid and they pay be able to get some of this tax back. Something I hadn't considered before.

But I think this would be acheiveable with a discretionary trust too and more flexible.

 

[Rob G.]

I went to a financial planning seminar late last year where they ran through a strategy of using a company. If a high income earner invested using a company and then just retained the profits in the company until they were on a lower rate of tax, such as in retirement then it could result in tax saved as they would be able to claim franking credits later on for the tax the company had paid and they pay be able to get some of this tax back. Something I hadn't considered before.

But I think this would be acheiveable with a discretionary trust too and more flexible.

What about messy CGT cost base for shares & units if large depreciation deductions and small business discount occur ?

Sounds like a risky one to recommend without further information.

Cheers,

Rob

 

[azzae89]

Hi
Was it a US book, they have a type of company that suits.

NSW discretionary trusts also have land tax issue, Qld not so much.


If buying in NSW see TerryW for advice.

regards

Yes it is a U.S book. It's "The ABC's of Real Estate Investing" by Ken McElroy - one of the Rich Dad's Advisors books.

If somebody has a better (Australian-centric) property investment book for beginners would they please recommend it?

Thanks guys - looks like I won't be setting up a company, just wanted to check.

 

[spooky]

check out this link

http://www.somersoft.com.au/books.htm;)

 

[DaveM]

I have seen Pty Ltd companies as owners on strata rolls/titles etc in my travels, but in every case it has been the corporate trustee for a SMSF or DT.

 

[alexlee]

I went to a financial planning seminar late last year where they ran through a strategy of using a company. If a high income earner invested using a company and then just retained the profits in the company until they were on a lower rate of tax, such as in retirement then it could result in tax saved as they would be able to claim franking credits later on for the tax the company had paid and they pay be able to get some of this tax back. Something I hadn't considered before.

But I think this would be acheiveable with a discretionary trust too and more flexible.

The key is how to get the money back out, though. While the above scenario is possible, if the person has children or grandchildren, there are likely to be a few years when the child or grandchild can take income tax effectively (uni years when >18 with little other income, say). For this to be used the company would have to be owned by a discretionary trust.

So it would be more effective (though more costly) to invest in a DT, distribute excess profits to a company owned by another DT, which then receives and distributes franked dividends depending on the tax situations of the family members. Each child or grandchild may well have 3-5 years when they are over 18 but have little other income.

Obviously depends on the size of the assets.

 

[alexlee]

Yes it is a U.S book. It's "The ABC's of Real Estate Investing" by Ken McElroy - one of the Rich Dad's Advisors books.

If somebody has a better (Australian-centric) property investment book for beginners would they please recommend it?

It's insane to try to apply one country's tax laws and structuring to another country.

 

[RPI]

Alex's point about over 18's is very valid, here's an example based on the assumption that you do not intend supporting your uni student children (that is a whole other debate).

If you only use 18k tax free threshold per person,
if you were distributing money to a bucket company though your structure so that the maximum personal tax rate that you and your spouse was on was 30%, you would pay $5.4k tax and have $12.6k at your disposal for personal use.

Actually distribute the whole $18k to the student via fortnightly transfers.

You could

Get them to chip in $150 a week for food and expenses, that's $7,800
Buy a carton of beer a some wine a week, that's $5,200

They would then have $5k left over for themselves. They would have to have a part time job earning in excess of $20k before they would be worse off from losing their tax free threshold.