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Structure going forward

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  • Structure going forward

    LTC going forward

    With ringfencing in place already, what is the future of LTC that is generating income now with no interest rate deductibility?.

    This means you will be paying Tax at the shareholders rate which could be as much as 39%

    If the spouse no longer works, and you want to allocate most of the income to them, changing changing shareholding will then trigger Bright Line test for 10 years, ( id previously bought 10 years ago and no BLT implications)

    Investors who have been in the game for a while, thinking of selling off some, free holding a couple for retirement income, would be facing this dilemma. Even selling shares or ownership to a trust will trigger BLT. Accountants and lawyers certainly will be busy.
    Last edited by Bluecoat; 18-04-2021, 04:09 PM.

  • #2
    I agree, there seems to be no point in having an LTC any more.

    just thinking out loud:
    Perhaps they would be better converted to a normal company.
    i dont know if there are any implications with that (the process of rescinding what was the original Loss Attributing status), but my guess is there would not be many LTC that wouldn't (by the time the 100% deductability is removed in 4 years) be having to pay tax on rent received. (leasehold property may be an exception, with high ground rent and Body Corp)
    As you say, that rental income is added to the income of the LTC shareholders at their tax rate, not at the company tax rate, due to the LTC status.
    In the case of a normal company, at least the tax would be at the company rate (30%).
    Perhaps passing the rent through to low income earners would reduce the tax, but again, if they are not already shareholders in the LTC then that creates a shareholder change, which as you point out could trigger Bright line.
    Does Bright line just apply to individual properties or also to the company holding properties ?
    Depending on the number of properties in the LTC, it may still be desirable to hold the properties for a further 10 years, but obviously that is at the risk of further law changes.

    The status of interest is still not clear either.
    Will it be able to be capitalised and included in any capitals gains tax calc (Bright line or full CGT which this corrupt lying Govt will eventually bring in.)
    or is it simply "Lost".

    re: extracting equity, is it still possible to repay shareholders Current Account, or has some complication been added to that.?
    Once the Current account has been repaid, i would guess extracting further equity would then be the same issue as it has always been (LTC or Normal), shareholder dividends, Fringe benefits, etc, all of which no doubt would be taxable.

    All of this points to a decision needing to be made by each owner as to whether it is still worth renting out a property, or is the risk and the cost now so high that just keeping the property unrented is the more logical option. (or selling).
    For those that have rental property in addition to other jobs, it may mean making a decision to stop working and become a full time rental operator, or on the other hand, getting out of rentals all together. (selling or just holding unrented)
    What is the point of working and having rentals if it costs more to do so, on the basis of "Potential future Capital Gain".
    In the past it was worth it because the costs were managable and the price growth proved to be a solid long term trend well ahead of real inflation, and thus was a true capital gain.
    I dont believe the same price growth will continue, and with Govt policies rapidly devaluing the dollar, the "Real Capital Growth" (not the price growth as Perry often points out) will become negligible and hence not worth the risk.


    • #3
      Time to switch to crypto currency!


      • #4
        That time was 5 yrs ago when Bitcoin was less than 2,000. its now over 60,000 !!!
        Crypto is a gamble, there's no fundamental asset behind them, they are all supply & demand driven.
        Create a demand with a limited supply & up they shoot.
        If that demand drops off because a new coin / token has taken its place, then suddenly that coin / token is worthless.

        Makes sense to have something,(got to be in to win) but with so many to choose from, how do you do proper due diligence and on what do you base the value, like you can with a share or stock that has underlying company assets.
        It really is just a gamble, not a safe investment.

        The volatility makes medium term holding the only realistic way to improve the chances of success, (Bitcoin jumped to 20k then back to 6k then up to 35k, now over 60k) but long term holding has too many risks that the coin/ token may not even exist any more.

        Besides, its all taxable and trackable (assuming you can convert it to a currency you can use, as opposed to spending it in its natural form), and if the Govt brings in a wealth tax as suggested by the Greens, you could be hit hard when the values are up, but get nothing back when the values are down.


        • #5
          Great points Keith, something to think about for planning - although must appreciate that there always be changes so cant plan ahead to an extend but must have a flexible structure that can accommodate these.
          With regards to taking capital gains out
          With a Look Through Company you can acknowledge a debt for any equity advanced to the company or recognize capital growth within the company and declare a capital dividend resulting in a shareholder current account for unrealized gains, which can then be assigned to a Family Trust which thereafter provides for asset protection.
          Is the distributions then taxed at trustees rates?

          Or simply wind up the company
          Distribute capital gains to shareholders in an LTC, again if bought 10 years ago outside of BLT, there should be no capital gains tax ?
          Last edited by Bluecoat; 18-04-2021, 04:36 PM.