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Found this article:
IRD starts crackdown on property investors' LAQCs
Tuesday 4 November 2008
Inland Revenue is stepping up its crackdown on people who have residential property in loss attributing qualifying companies (LAQCs).
It has sent 33,000 letters to people who have residential properties in LAQCs.
“We are writing to these taxpayers to ensure they’re aware of our concerns about private homes held in LAQCs,” IR says in one of its letters.
It says its concerns are about property-based LAQCs where people have their private family homes in a LAQC, then rent the property back to themselves.
It says in these circumstances LAQCs may claim deductions for things like insurance, rates and maintenance that would otherwise be considered private expenses.
“In our view this activity is tax avoidance, with very few exceptions,” IR says.
The department goes on to say that some people name a spouse or partner or friend as the tenant, even though they are still living in the property themselves.
IR says it plans to increase its audit activity and the responsibility for getting things right rests with the taxpayer not their advisers.
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My quick question:
So, you own the shares in an LAQC; the LAQC owns a house; you rent the house from the LAQC. According to the article, this likely constitutes tax avoidance.
But if say you are the trustee/beneficiary of a trust; the trust owns a house; you rent the house from the trust. Is this the exact same situation?
Hi Ute. No the trust scenario is different, there are not the same tax benefits. A trust owning your own home is considered sensible asset protection. Living in an LAQC owned property is considered tax avoidance. If the company hadn't taken a loss election then no problem.
Hi Ute. No the trust scenario is different, there are not the same tax benefits. A trust owning your own home is considered sensible asset protection. Living in an LAQC owned property is considered tax avoidance. If the company hadn't taken a loss election then no problem.
He is suggesting renting from the trust therefore turning non deductible personal expenditure (interest and depn) into deductible business expenditure.
My personal view is it isn't as dodgy as the LAQC as it isn't as circular (as a trust is more separate than a company form the individual). However, I believe in every situation, where you sell your existing PPOR into a LAQC (or Trust) then it is tax avoidance if you rent it from the new entity (no issues if you don't rent it).
Quick question: LACQ vs Trusts
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