Structure/Tax query

[OldMattDonald]

Hi Team,

Quick(ish) question.

If I were to buy a multi unit property on one title, and wanted to live in one of the units, whilst rent the other. What is going to be the best structure to do this, claim everything I could on the rental half, without running into an auditors bad side/ FBT.

Tenants in common with me owning half personally and a company owning the other half?

Thanks

[Propertytrader]

Hi there, that is easy,lets take an example, you use your phone for business and personal use,you can claim expenses on the business use, which can be 50%,or as the case may be.

Now in your case,one unit is your house,the other one is a rental,so basically for tax purposes,you just declare the rental one,unless you have boarders at your own unit,who pay more than $270 a week in rent,then you need to make an adjusment, as in the example of the phone above.

[Rosco]

Hi OldMattDonald,

There are lots of options, and it depends on your circumstances. I suggest you get advice from a property accountant who is a chartered accountant.

Generally you don't want your personal house in a Company as this creates issues.

If you have reasonable debt, there are some ways you could put more debt legally on the rental and less or nothing on the personal. So if high debt, would be well worth getting some expert advice!

If lower debt, a Trust could be a good option to protect your asset!

Ross

[Matt Gilligan]

Good answer Ross. I would add that FBT only applies to entities that you are an employee of. The more pressing worry with companies is the possibility of a deemed dividend, meaning that ownership in a company of an asset that is providing a benefit to an associated party who is not an employee, can still be taxable as a deemed dividend. However there are excellent structuring options such as LTC's that work around these issues.

The obvious structure here would be Tennants in common between a trust and an ltc, gearing the ltc to 100% assuming you have debt, with residual debt in the Trust. This minimises non deductible debt.

When starting business you are entitled to pick a tax efficient structure like this under the Newton Predication test, that came from the Newton Case. I say this to those wondering about tax avoidance etc.

I discuss these issues in my new book, Tax Structures 101. Check it out on our gra Web under resources / books if it is of interest.

Last point, Rosco is 100% on the money. Non qualified accountants are not trained to the same standards as CAs. Pay peanuts, get inferior advice and pay more tax. It's as simple as that.

Hope that helps.