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Rent to Buy Tax structure

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  • Rent to Buy Tax structure

    Hi i would like to ask any person that has experience with rent to buy and the best approach to set this up for tax purposes.
    Currently we have a property worth approx $60k mortgage free under a LAQC which is part of our property portfolio.
    With the recent current law changes in NZ, what would be the best way to get as much money back without getting stung heavily from IRD. please note myself and partners income would be less than the average wage as new baby born and and im trying to find work and should do soon). i want to be open as it could impact how we set this up.
    Also if we go with the rent to buy, our LAQC would then be making profit.
    There has been some suggestions of tranfering our company name to personal names then lending from the company..
    if you have any questions please ask

  • #2

    Sorry, just wanting to confirm some things.

    LAQC currently owns the property.
    What was your intention when you purchased the property? (maybe something like long term rental, or to trade, or to sell at profit, long term investment etc)
    What building depreciation has been claimed since purchase? Most likely you will recover the building depreciation when you sell!
    Who owns the LAQC?
    What incomes to the shareholders have, and an estimate of incomes in year of sale? You don't need to answer this, but you need to think about the best place for any losses, and if there will be building depreciation recovered, where is the best place for this. New LAQC rules propose income goes to shareholders too. So a possibility if losses are small (or if profit), might be all shares to your wife/partner(presuming low income as children) then depreciation recovered would all go to her if new rules go through. So income would go to the lowest earning individual, saving tax.

    If you sell as a rent to own. Buyer will normally pay high rent, plus weekly deposit towards buying property. The rent will obviously be income, but the weekly money toward the deposit is not income, and is just a deposit. Generally a rent to own agreement gives the buyer an option to buy, and when this option is exercised (might be 3 years later), then the sale would occur and depreciation would be recovered.

    Therefore if you purchased as a long term rental, and the property is currently in an LAQC, there is probably no advantage in changing it. It would just give you depreciation recovered now rather than later. The rent to own situation doesn't really change the structure needed.

    BUT, this does depend on a number of factors which I might not be aware of. Such as your other assets, structures, other properties in LAQC, businessses you may own etc, so this is just some general points and not specific advice.

    Book a free chat here
    Ross Barnett - Property Accountant


    • #3

      Thankyou for your reply Ross
      Yes LAQC currently owns this property. (director – myself. Shareholders- wife and I of 50/50 )
      Since we have had the property, we have never received one rental payment to date.
      We have owned this property for over 3 years now.
      Our other property is currently receiving rent under LAQC
      Building depreciation – nill on the house in question
      Total Income would be from $14,001 to $48,000 (assuming I start work next month, inc wifes
      Total income if include the LAQC property would meet the higher threshold

      Also note I have not take into consideration the amount from rent to buy. Weekly amounts of less than $150 per week rent, and $150 for principle payments over a few years.

      If we have to invest to keep the LAQC structured, then obviously we would.
      There is no other business / assets which will impact this

      Your response is much appreciated