Effective property finance for business owners

[mgs4]

A query on property finance for business owners, lets say one takes a view that they prefer to own property in their own name but their income comes through their business in a pty ltd. Lets say the pty ltd earnings are $250k and the owner typically pays a dividend of say $100k to provide themselves income personally.

The relatively lower cash an income in their personal name can be a limit to buying power. Could once perhaps borrow additional capital in their own names as a secured loan, secured against cash and other liquid assets held in the pty ltd? The purpose of those is to avoid paying excessively high marginal income tax in your own name. Appreciate thoughts and feedback.

 

[Mick C]

1. How many directors are part of this PTY LTD?

If it's only one...than yea what your trying to achieve is fine from a tax point of view and loan as well ( minimize tax but max the borrowing/ servicing)

More than 2 directors...possible also but not as simple and straight forward.

 

[mgs4]

1. How many directors are part of this PTY LTD?

If it's only one...than yea what your trying to achieve is fine from a tax point of view and loan as well ( minimize tax but max the borrowing/ servicing)

More than 2 directors...possible also but not as simple and straight forward.

Yes a simple private vehicle, sole director, sole shareholder.

If you got a loan secured against cash and liquid assets, would you say have to hold the cash in a term deposit or something that can't be withdrawn?

Is this the most effective approach do you think of accessing capital in a lower tax vehicle (pty ltd) to buy property in the preferred means (individual name)?

 

[Mick C]

I think your over thinking and complicating things....given it's solo director and the PTY LTD is really just a "vehicle" of income.

What ever the PTY makes we can declare...in fact you can have a directors salary of $40k to reduce the tax and we can still "addback" the pty income that didn't get disp...for tax reasons of course....all good- lenders understand this ( will sometime we need to explain it to them if it's an younger inexperienced credit officer...)

And yes if we can hold cash as security in a term deposit - lock up for 1-2 years if required....if that a good method? yes and no...depending what your trying to achieve and do.

 

[mgs4]

I think your over thinking and complicating things....given it's solo director and the PTY LTD is really just a "vehicle" of income.

What ever the PTY makes we can declare...in fact you can have a directors salary of $40k to reduce the tax and we can still "addback" the pty income that didn't get disp...for tax reasons of course....all good- lenders understand this ( will sometime we need to explain it to them if it's an younger inexperienced credit officer...)

And yes if we can hold cash as security in a term deposit - lock up for 1-2 years if required....if that a good method? yes and no...depending what your trying to achieve and do.

The summary of the issue is surplus cash in the pty ltd with insufficient cash in one's personal name for the property one wants to purchase, so the question is how do you most effectively allow one personally to have a sufficient deposit. The issue with transfering large amounts of cash from the pty ltd to one personally as a director salary/dividend etc. is paying particularly high marginal income tax rates.

The secured loan in the personal name is one approach. Because if you borrowed 100% say for the property from a single bank you would have to pay LMI wouldn't you?

 

[Terry_w]

Seek legal advice on the Corporations law issues.

 

[Mick C]

The summary of the issue is surplus cash in the pty ltd with insufficient cash in one's personal name for the property one wants to purchase, so the question is how do you most effectively allow one personally to have a sufficient deposit. The issue with transfering large amounts of cash from the pty ltd to one personally as a director salary/dividend etc. is paying particularly high marginal income tax rates.

The secured loan in the personal name is one approach. Because if you borrowed 100% say for the property from a single bank you would have to pay LMI wouldn't you?

probably 3-4 method off the top of my head
- Term deposit it
- Personal directors loan from company ( step carefully need your accountant to do this properly..)
- pending on your profession, 90-95% LVR no LMi possible.
- 3rd party security
- 1 year gift from company and return by the end of FY( very risky...but this is common with flippers and professional renovators)


Note: The bank is flexible, and there's more than 10 ways to fund the same loan...but from your end you need to make sure your doing it correctly legally and from an accounting point of view for your scenario/set up - so always wise to work with your team of lawyers/accountant and banker/broker and consulting all 3.