Future family home

[GenY]

Hi all,

any comments appreciated thanks

Looking at a new home in Auckland at the moment for the growing family- but to use in 5 years time (so looking to buy and rent it out)

Currently have a family home in a trust and trust owns a company with a number of rentals

Im planning on buying the new home via the holding company.

what happens in 5 years time? Do I sell current home (which is debt free) into the holding company, refinance and use the funds to pay off debt off the new family home and put that into the trust?

thanks

[donna]

I recommend you ask a property accountant.

cheers,

donna

[Rosco]

Current home in Company? Normally you wouldn't want a personal home in a Company. If it is a normal company, you would need to charge rent at fair market rate.

New home, depends on how negative.

Also depends on exact circumstances and structure.

You really need to get full advice on this

Ross

[Anthonyacat]

Think you misread that, Ross. Currently have a family home in a trust and trust owns a company with a number of rentals.

But as for GenY's original question: Yes, that's pretty much how it'd go most of the time. But as Ross has said, too many variables to discuss here. Talk to your accountant!

[GenY]

Thanks for the replies

[spaceman]

If you do things properly...there is no need to pay down the debt on the new property when you move in, 5 years from now.

Rent it to yourself at market rent.....of course it's not that simple.... but effectively you can.....if a company owns the property, the company is renting the property to you...not you to yourself.

*in before people say it can't be done* ....can anybody show me the law that states a company can't rent a property to whoever it wants???

Cheers
Spaceman

[Anthonyacat]

If you do things properly...there is no need to pay down the debt on the new property when you move in, 5 years from now.

Rent it to yourself at market rent.....of course it's not that simple.... but effectively you can.....if a company owns the property, the company is renting the property to you...not you to yourself.

*in before people say it can't be done* ....can anybody show me the law that states a company can't rent a property to whoever it wants???

Cheers
Spaceman

This is quite an interesting situation. Of course the law allows a company to rent to whomever it likes. But claiming interest and others deductions is entirely another matter. The IRD have given a fair bit of guidance on renting homes to yourself through a company being tax avoidance.

Revenue Alert RA 07/01 (https://www.ird.govt.nz/technical-ta...rt-ra0701.html) goes into a lot more detail. Makes it quite clear that they consider the arrangement tax avoidance, but will review each instance individually. So perhaps if you were renting to yourself as part of a larger portfolio of property, it might scrape past. And certainly would be allowed if rent covered all expenses and resulted in taxes to pay.

*in before the response it only talks about LAQC/LTCs*

https://www.ird.govt.nz/property/property-common-mistakes/prop-owned-by-LAQC/

You may believe that if you continue to pay market rent to the company you can continue to claim these LTC or LAQC losses against your income. However, we may still consider the arrangement to be tax avoidance.
The same principle applies if a similar structure is used such as a company, partnership or trust.

[spaceman]

This is quite an interesting situation. Of course the law allows a company to rent to whomever it likes. But claiming interest and others deductions is entirely another matter. The IRD have given a fair bit of guidance on renting homes to yourself through a company being tax avoidance.

Revenue Alert RA 07/01 (https://www.ird.govt.nz/technical-ta...rt-ra0701.html) goes into a lot more detail. Makes it quite clear that they consider the arrangement tax avoidance, but will review each instance individually. So perhaps if you were renting to yourself as part of a larger portfolio of property, it might scrape past. And certainly would be allowed if rent covered all expenses and resulted in taxes to pay.

*in before the response it only talks about LAQC/LTCs*

https://www.ird.govt.nz/property/property-common-mistakes/prop-owned-by-LAQC/

You may believe that if you continue to pay market rent to the company you can continue to claim these LTC or LAQC losses against your income. However, we may still consider the arrangement to be tax avoidance.
The same principle applies if a similar structure is used such as a company, partnership or trust.

Highlighting added to prove my point..... I did say ....if you do things properly.......It clearly states "may" not "will"..... yes you could do it wrong and be guilty of tax avoidance....cross your t's and dot your i's and she'll be right mate

Not only....but also ....if you take the time to read features 1 -5 they quite clearly wouldn't apply in this case

Issue: The sale of private homes to loss attributing qualifying companies to generate tax deductions.

Some loss attributing qualifying companies (LAQCs) are causing us concern. Those of most concern involve people selling their own or family home to a LAQC, then renting the property back to themselves and claiming tax deductions for the property that would otherwise be considered to be private expenses.

......this simply isn't want the OP says will happen ...this talks about a PPOR being sold to a LAQC then rented back.....read the OP again and tell me if this is what's happening or not in his case.

Cheers
Spaceman

[GenY]

Highlighting added to prove my point..... I did say ....if you do things properly.......It clearly states "may" not "will"..... yes you could do it wrong and be guilty of tax avoidance....cross your t's and dot your i's and she'll be right mate

Not only....but also ....if you take the time to read features 1 -5 they quite clearly wouldn't apply in this case

......this simply isn't want the OP says will happen ...this talks about a PPOR being sold to a LAQC then rented back.....read the OP again and tell me if this is what's happening or not in his case.[/COLOR]

Cheers
Spaceman

Interesting debate Spaceman and Anthonyacat!

Does either of you know does the company you sell your PPOR to have to be a LTC or can it be a normal company?

cheers

[spaceman]

It depends ...It can be either ...it's up to you .......we don't live in a police state.

The problem with a LTC is of course the tax benefits flowing back to you....from the IRD's POV

With a "normal" company this doesn't happen so it's less of an issue .....that being said it's not a get out of jail free card ....if the reason for doing what you're doing is to reduce payable tax, then by definition you're guilty of tax avoidance. You need some other valid reason and have the tax savings as incidental.

Cheers
Spaceman