Is it possible?



From: Michael Howser

Can someone please answer a question?

Is it possible to buy property in a company name and then rent the property (your PPOR) from your company (and hence get a tax deduction for your own interest)?

It seems too obvious, I feel that I must be missing something.

Any feedback appreciated,

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Reply: 1
From: Dale Gatherum-Goss

Hi Michael!

Yes, it is possible to buy a property in the name of the company and for you to rent that property from your own company.

In fact, depending upon your income level, the Government, through Centrelink, might even pay you a rental assistance to do this.

However, one potential drawback from the idea is that the eventual profit when you sell the house is taxed if it is in a company name whereas it is tax free if it is in your name.

There are other issues so step carefully if you wish to proceed.

have fun and great thinking!

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Reply: 1.1
From: Sim' Hampel

Some of the issues that Dale may have been alluding to include a recent ruling by the ATO (yet to be challenged in court ? I can't remember)

This ruling identified contrivances such as purchasing your PPOR in a trust structure and then renting from the trust and then claiming interest on what is essentially a personal expense.

They state that since the sole purpose of this structure, considering that you are still a beneficiary (even indirectly) of the structure, is to avoid tax, and as such is not allowable.

I'm sure there are ways around it, but beware that the ATO is paying close attention to such things and make sure you get damned good professional advice before proceeding.

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Reply: 1.1.1
From: Boyler Room


I was under the impression that only a member of the family or someone close to the beneficiary/individual could actually state that the purpose of the trust is to avoid taxes by claiming personal expenses etc. (I hope that makes sense to everyone else).

As I understand it, there was a case that set a precedent. Don't ask me to recall... perhaps Dale will be able to help out with this one.

Anyway, the point to the post is that I'm not sure that the ATO can just assume that it is being used to filter personal expenses. My understanding is that they need someone close to the individual to actually state this.

Once again, I'm not an accountant or a solicitor so I'd appreciate their thoughts on this.

Boyler Room
Co Ordinator for ADL Freestylers
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From: Sim' Hampel

I am no expert either BR, but to me it falls into the duck (or fish !) category...

You cannot claim a deduction on interest on loans used for personal use (such as a PPOR). This is not nor has it ever been under dispute.

However, the question becomes; can we structure it in a way in which the transactions are sufficiently "arms length" in nature such that we can convince the ATO that it is no longer a personal asset.

The argument I was referring to is where you use a family trust as the vehicle, and you are both the tenant and the beneficiary of the trust. Since as beneficiary you get the benefits from the trust such as growth in the value of the asset, but you also get to live in the place as essentially a PPOR, the question arises as to whether you are gaining a tax benefit on what looks and smells like a personal expense.

So that leaves us with the task of finding another way of structuring the deal. Note that I don't know the status of this ruling, and indeed it may not actually be enforcable, which is why advice is necessary.

I haven't posed the question to my own accountant yet (since I am currently renting someone elses property), but it is something I am curious to hear his opinion on.

As to your other comments BR, I haven't heard or read anything which states that a family member must "dob you in" about the nature of your structure, indeed my understanding is that the ATO can do whatever it damn well pleases.

Actually let me qualify that... the ATO can do whatever it thinks it can win a court case on !

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From: Dale Gatherum-Goss


Actually, the recent tax office "ruling" on unit trusts was more because of the actual method used than what was done.

A family trust is different and the tax office have shown no real interest in the activities of people doing something similar using this structure.

As for fishy smells, well, what can I say that won't have me in more trouble on this forum??!!

Seriously, you will claim tax deductions for expenses incurred in earning your income where you can prove that the money was indeed spent, and, to an extent that you are personally comfortable.

So, for some, they will not claim deductions that they could claim because their moral or ethical stance suggests that such items should not be tax deductible regardless of what an accountant will claim.

For others, well, they have no such qualms and will claim everything possible and a few that are totally improbable.

Keep receipts, keep an open mind and claim what you feel comfortable claiming just as you invest as you feel comfortable investing.

Do not fear the tax office but treat them warily all the same.

Have fun

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From: Sim' Hampel

Thanks for the clarification Dale.

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From: Splinter Wood

Hi Michael,

As one mentioned earlier in this thread, if you deduct the interest through your Company, then you get fully taxed on the profit when you sell. I also think you will not get any GCT relief.

Another thing you should watch is that the renting by you from your company may not be 'arms length'. If they deem you are not paying the correct rent i.e. paying too little so your Co. runs up more deductions, then they (the ATO) may slap you VERY hard.

Also, they (ATO) have the provision to deem what you are doing is "..not in the spirit of the law.." (Mr Keatings earlier efforts - Section 4A from distant memory) and they may again slap you.

You certainly have NOT discovered a technique not previous thought of, hence this is not a common practise as there generally are no major benefits by doing by this.

You don't want to get slapped either. I have had the unfortunate experience of restructuring a families finances who did get slapped for seemingly minor infringements and it was NOT pleasant.

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