Look Through vs Limited Liability Company

[House Hunter]

Am I right by saying look through company structures are better if over a long time period you intend to make a cash loss year in year out and limited liability structures are better if you intend to run at a cash profit?

[epsomtax]

Am I right by saying look through company structures are better if over a long time period you intend to make a cash loss year in year out and limited liability structures are better if you intend to run at a cash profit?

In our considered opinion, it is too complex to give a simple Yes or No answer to this question. You need to consider what your long term wealth creation goals are, and when you want to achieve them, as well as the intermediate steps.

Further, it depends on who will be the shareholders of the company. Do you have two parties in different tax brackets? What is your current tax bracket? Do you plan to buy, hold, sell and make a (taxable) profit? Or is it longterm rental?

Is there a trust in the mix? Should there be? What other investments and business interests exist?

We recommend that you make an appointment with a property accountant and an authorised financial advisor. Talk to your lawyer as well, and also your risk advisor. That way, these 4 professionals (who should be working together) can give you the information you require so that you can make a good decision which will benefit you both now and in the long term.

Kind regards
EpsomTax.com Ltd
Property Accountants

PS I'm not just saying that to try to generate business. I've seen a number of messy situations which are difficult to fix, so it pays to get the right advice from the get-go.

[Rosco]

Am I right by saying look through company structures are better if over a long time period you intend to make a cash loss year in year out and limited liability structures are better if you intend to run at a cash profit?

Some people see a standard company as attractive because of the 28% tax bracket, but

- It is more difficult to get capital gains out of a standard company, as you normally have to liquidate to access these which might cost $3,000 plus
- 28% is only the interim tax rate. At some point you will want to distribute the retained earnings to the shareholders, and this will be done at 33%
- dividends have further costs
- often miss opportunities to give income to lower income earnings spouses or children
- can't access losses. And with property investment, often cashflow positive properties become tax negative after chattels depreciation

A standard company could work well for an investor who doesn't need the cash out from positive properties, and is reinvesting it into reducing debts on the rentals. So someone who already has a debt free house, and most likely is already paying 33% on individual and spouses income. But not my preference very often!

Ross

[PTILoveYou]

For normal company, as Ross said, it's harder to get the capital gains out, and if you want to sell one property, without paying tax on capital gains, you need to liquidate the normal company.

Personally I prefer LTC.

I strongly suggest you talk to a good accountant.

[Rosco]

Hi Gary,

a normal company doesn't mean you pay tax on capital gains. That depends on your intention and your associations.

It is just harder to get those capital gains out to the shareholders. If the shareholders just take the money without having a large enough shareholders current account, then the Company must charge then interest.

Ross