Paul,
I can remember your post and where these % come from. But question, does deferring tax always results in paying more tax in the end? The final tax could be a lot less than 30% too could it not?
Why it may be a good idea to use a company to own property
- Thread starter Terry_w
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Paul,
I can remember your post and where these % come from. But question, does deferring tax always results in paying more tax in the end? The final tax could be a lot less than 30% too could it not?
No, you are correct. I think the point Paul is making is that the marginal rate + medicare levy for income over $37,000 is now 34%, which is higher than the company rate. You are paying top up tax of 4% for every extra dollar over $37,000, or cash dividend (assuming no other income) of $25900 (approx.)
While you are correct, if someone has no other income, the effective tax rate is still low, due to the tax free threshold. So, assuming absolutely no other income, if someone was paid a $70k FF div (i.e. 30k Franking Credit for a taxable income of $100k), they would still get a refund of over $3500, assuming no HELP debt etc. The tax and Medicare levy on $100k income is $26,447, so really its an effective tax rate of 26.44% which is still lower than the company rate of 30%.
The actual tax rate for an individual, doesn't exceed 30% until we get up to the $140k territory.
Edit: Sorry Blacky & Dan, misread your post, completely agree with what you have both said
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Sorry Terry, I have tried to follow this but my eyes and brain have glazed over. I have one property and my own home in Victoria. I am retired with 3 children with families of their own. I live off rent. I will soon be in a position to buy two more properties fully paid for with cash which I will rent out, and wonder what would be the best structure to buy in. Have recently been thinking whether Pty Ltd would be any good. Really ticks me off to think govt will have their hand out for 50% when I cark it so I wont be able to give full money to my kids
FernFurn
You are asking for specific advice. Sorry - but its just not possible to provide this without a lot more detail on your personal circumstance and goals (oh, and a license to give advice)
There are a number of structures which may be suitable.
I know - Im not Terry (or licensed)- but Im guessing he would say the same.
Blacky
This is new to me. Karking it (should it be a c or a k?) is usually tax free. Can you please explain?
Thanks Blacky
I get PMs and emails everyday asking is it a 'good' idea to use a XX to buy property?
The short answer is you have to weigh up all the factors that are affected and then make an informed decision. It might be 'good' to own property in a discretionary trust from a tax point of view, but bad from an estate planning point of view if you have 2 children for example. Good for asset protection from creditors but bad for asset protection from beneficiaries on your death,
This is correct. We can declare $142k gross income for each member of the family. So in total we pay ourselves over $500k gross and pay no individual taxes.
This is hardly limiting our income or deferring our income. We simply wouldn't want more than this as personal funds. All reinvestment is done via our structures.
A tax calculator is available on the ATO web site. Its a simple calculator and doesn't allow for medicare etc but you can read that yourself.
https://www.ato.gov.au/Calculators-and-tools/Simple-tax-calculator/
Cheers
Sorry for the slang, I find it much more interesting than the Queen's english. Probably with a 'c' Terry, the house I am selling was pre 1985, but the 2 houses I buy with this money will obviously attract stamp duty and will be used for rental income, I thought that made them 50% cgt. So when I die and will them to my kids and they sell them, they would attract 50% to the govt?? Is this not so??
Not so.
If someone inherits an investment property they will probably inherit the cost base, roughly, that you had. But this CGT would only be payable when the property is sold. 50% discount would also apply so the max tax would be 25% approx, but probably less and it may be 50 years after you die.
You would incur tax anyway so there is no extra.
Today there was a land tax webinar conducted by the OSR (NSW). I asked the question if a company, with a husband as sole director/shareholder, would be considered a 'related' to a second company with a wife as sole director and shareholder and thereby aggregated for land tax purposes.
The presenter said that these companies would probably not be treated as being related.
Slides for the webinar are up at http://somersoft.com/forums/showthread.php?p=1292691#post1292691
The presenter said that these companies would probably not be treated as being related.
Slides for the webinar are up at http://somersoft.com/forums/showthread.php?p=1292691#post1292691
Would it be right to suggest that if you don't need 140K per individual and only draw what you actually need, for example, for a retirement in an Asian country, you can get a lot of your 30% company tax back.
Yes, but you have to be careful with residency.
In Queensland, trusts have their own land tax threshold, and a corporate trustee can provide the asset protection. Capital gains at worst would be 24.5% for anyone in receipt of them. Since trusts can distribute the tax free elements out and a company cannot, I'd still be sticking with trusts for passive rental income.
Certainly would.
Say you each draw $25,000 (total of $50,000 for the couple) you will pay about $1,500 each in tax ($3,000) in total.
Given that you have already paid ~$15,000 in company tax it is a nice return.
But as Terry said - Just watch you residency status.
Blacky
Yes I think it is 360K, it is nice. In fact by owning my dev site in a company name I do not get any land tax benefit. The land value was 350K on the latest notice.
CG is just one consideration. The main attraction is the fact you can defer income and in my situation there is nothing a trust can do to help with reducing tax down to 30%.
Maybe I work too much.
Yeah something to think about definitely.
I can't see anything wrong with Handyandy's way of doing things. He does not own anything. He controls everything. He draws what he needs while minimising tax. His net worth accumulating nicely through ongoing investing and compounding. Kids get to play the same game.
It is more than land tax benefits we are talking about here.
I think we have all just agreed it may be a good idea to use a company to own property in certain situations/circumstances.
There is never one right answer, and rarely a perfect solution.
Each option gives different benefits, and comes with different limitations.
At the end of the day you will pay tax, be it income tax, CGT, GST, land tax or some other tax. Its just a matter of how much and when.
Blacky
I will be moving a house from a trust that my brother and I control into my own control.
With a trustees or companies (in Qld) having a $349,999 threshold and an individual having a $599,999 threshold, and the UCV of the block in question being $560K I could hold it in my name, but as soon as the UCV hits $600K I'll pay $500 plus 1 cent for each $1 over $600K.
Once UCV hits $650K I will be paying $1K in land tax per year (using 2013-14 calculations).
If I put this same block into a new trust, controlled by me, then immediately I move it the land tax on the current value will be $5,020 per year. ($1,450 plus 1.7 cents per $1 more than $350K).
One of the reasons for moving this house is to pay less land tax, so it seems nonsensical to put it into another trust.
Question 1. Can I set up a trust, controlled by me and hold it half/half (half owned by me as an individual and half owned by a new trust controlled by me)? Would this mean the land tax is divided between the two entities? Or would this be seen as a way of avoiding land tax?
Question 2. Can I set up two trusts, both controlled by me to get to the same end result as question 1?
Question 3. If I can minimise land tax via the above scenarios, would the cost of administering, auditing(?), tax returns etc on the trust/s be worthwhile to make the saving? I don't want to spend $3K in accounting fees to save $5K in land tax?
With a trustees or companies (in Qld) having a $349,999 threshold and an individual having a $599,999 threshold, and the UCV of the block in question being $560K I could hold it in my name, but as soon as the UCV hits $600K I'll pay $500 plus 1 cent for each $1 over $600K.
Once UCV hits $650K I will be paying $1K in land tax per year (using 2013-14 calculations).
If I put this same block into a new trust, controlled by me, then immediately I move it the land tax on the current value will be $5,020 per year. ($1,450 plus 1.7 cents per $1 more than $350K).
One of the reasons for moving this house is to pay less land tax, so it seems nonsensical to put it into another trust.
Question 1. Can I set up a trust, controlled by me and hold it half/half (half owned by me as an individual and half owned by a new trust controlled by me)? Would this mean the land tax is divided between the two entities? Or would this be seen as a way of avoiding land tax?
Question 2. Can I set up two trusts, both controlled by me to get to the same end result as question 1?
Question 3. If I can minimise land tax via the above scenarios, would the cost of administering, auditing(?), tax returns etc on the trust/s be worthwhile to make the saving? I don't want to spend $3K in accounting fees to save $5K in land tax?
