Transfer Mortgage to LAQC from Personal Name

[NzDuder]

Hi

Would like to see what the masses have to say.

Im currently in the process of tranfering my investment property from my personal name to my LAQC name. The paper work from my bank is some what detailed and comprehensive. I've had an over view from my solicitor but want to gain a thorough understanding of this transfer paper work.

I've spent the last week studying in great detail every single word. I've listed my questions for my solicitor and the bank. There is a lot I don't understand bloom'in jargon !

Has anyone else gone through this process and what should I look out for ?

I asume the terms and conditions should near enough remain the same , RIGHT ?

Its still me and no one else is on the LAQC name of directors.

Any pointers would be grand !

Regards NzDuder

[Monkeyboy]

The only difference primarily is that now you will have to give a personal guarantee as director of the LAQC. Quite a simple procedure overall. Well done on the reading of the Docs. Would be interested to know myself how many people actually read all/some of their docs or just rely on their solicitor as they take you through them usually quickly.

[xris]

Hello nzdude,

1/ Why are you doing this anyway? What is the advantage to you?

2/ Tell us about any loans you may have relating to this property.

xris

[Monkeyboy]

Good call Xris

It is not always neccesary to put your IP into an LAQC. You are still able to reap the benefits from having an IP in your personal names.

[krispedersen]

Just be aware that if you are transfering the property into the LAQC and you have been claiming depreciation the IRD will probably claw this back from you

[payjisan]

I have bought two properties this year, one we live in and share with flatmates and one IP. Both are in our own names.

MonkeyBoy could you elaborate as to how I could get benefits from keeping these in my own name? I will be seeking some expert advice soon as we plan to move out of our shared situation and would like to maximise any benefits once we do this.

thanks

[Reno]

MonkeyBoy could you elaborate as to how I could get benefits from keeping these in my own name? I will be seeking some expert advice soon as we plan to move out of our shared situation and would like to maximise any benefits once we do this.

Leaving it in your own name will not allow you to claim losses against your weekly/fornightly/monthly wages. You'll just have to claim it at the end of the financial year.
Creating an LAQC will need ongoing maintence and costs to setup. Any change in circumstances e.g. a new share holder will require you to re-apply for your LAQC status incurring accountant fees.
You are also expected to return a profit in the future so somehow you lose your status then as well.
Basically it is easier to claim at the end of the year without all the hassles if you don't need the extra cashflow from reduced income tax rate.

[Reno]

Bits and Pieces I Remember

You need to sell the house to the LAQC at current market value. I needed a valuation - Can't remember if it needed to be a registered Val or a real-estate agent one but I did a registered Val.
Make sure your conveyancy includes a sale and purchase agreement - :-) for some reason the company I used failed to provide one and my accountant needed it later for EOY tax returns - easily fixed though.
The bank charged me $100 to make the change everything in the mortgage agreement stayed the same except it had the name of the LAQC. They still wanted my wife and myself named as the guarantors.
I created a company bank account to keep everything separate.

If I remember anything else later I'll post it

[payjisan]

Thanks for that Reno, glad to hear that I can still claim some expenses up until now.

[Real buzz]

Could anyone tell me why nzduder would benfit from transfering property from the personal name to the LAQC apart from the protection provided using the limited liability company. The LAQC advantage comes from having two or more directors and choosing which directors personal tax rate to use at set up time- thats my understanding anyhow. If the LAQC is showing a loss on paper one might elect to set up with a higher tax rate. If one is close to profit straight off and elects to use a lower tax rate, benefits would be limited by the low tax rate if LAQC then buys more property as losses would be attributed against the low tax rate. Am I right or wrong? Could someone please tell me why an LAQC looses that status once in profit and does the tax rate then become the company tax rate of the day? What would be the reason for nzduder tax wise to use an LAQC if there is just one director - unless nzduder has a favourable tax rate depending on expected paper loss or profit. Mmmm.. can't avoid the depreciation claw back and depreciation can't be claimed at the new S&P price either.

[Real buzz]

Could anyone tell me which is the best way to move LAQC IPs to a Buy & Hold trust. Should the LAQC be closed down and property sold to the trust or would it be recommended to transfer the LAQC shares to the B&H trust.I think transfering shares avoides depreciation claw back but is the asset protection better or worse for doing things that way. Comment appreciated thanks.

[Reno]

Long time no... reply!

Hi Real Buzz
I was always meaning to come back to this but forgot about it. I’ve been absent from PT for a while due to renovating a house. I needed some advice and came back on last week. This may be a bit late but thought I’d answer it anyway.

If you have more than one share holder then the tax loss is divided by the percentage of shares that you have. You can't choose which share holder takes on the tax break. If you have one high tax earner in your relationship you really want to them to have most of the shares.
LAQC is a loss attributing qualifying company and has a number of rules to qualify and stay qualified. One of them is that it must reach profit and that when it does that it will lose the LAQC status. Once it is in profit then it is making money and you pay the company tax rate on that profit.

To transfer the LAQC property to a B&H Trust the best method is to Transfer the shares to Trust. You are correct that clawback will not be triggered using this method. If the property is still running at a loss when you do you will want the trust to be earning a profit from other avenues for it to be effective. This is so the Trust can claim its share of losses. If it is a Trust that is static or running at a loss itself then you will have to defer the losses until it makes a profit. I don’t know how long you can defer for though – maybe someone else can help.