A wee question on LAQC

[hq_guo]

Hey guys, just one wee little question on LAQC here....

My partner and I just bought a two storey property. We are gonna live at upstairs. The ground floor has been purposefully modified to a self-contained unit with its own doors and power meter.

We are looking at different options of managing the rental income from downstairs.

So my question is:

* Is my situation eligible for LAQC? Or it can only be applied on a property with its own title (not a basement of a property) ?

* How would the future of LAQC look like? I have been told that there is very likely to be something in the pipe on this in the near future. What do you guys say?


Any thoughts will be highly appreciated!!

Thanks in advance, guys~

[mortgage broker]

Yes you are right, it would have to be on a separate title before you would be comfortable having the property owned by an LAQC. Unless of course you moved out.

[hq_guo]

It looks like we have to take this card out of our sleeves then......

Hey man, thanks for your help~~

[Rosco]

I presume you have settled, and purchased in your joint names.

In this case the simple scenario for you to return the rental profit or loss 50/50. Purchase price would be split, and % of loan used for rental would be deductible. Say purchased for $300,000, and downstairs is worth $100,000 (1/3rd). Loan taken out was $150,000, so 1/3rd of loan would be for rental, so interest on $50,000 would be deductible against rental income.

You can make this a lot more complicated, but often there is no benefit to you, just more accounting or set up fees.

So say for example you were on a $100k + income and your partner has no income. Property could be sold from your joint names to a JV, with the two of you as one part, and say an LAQC (99% owned by you) the other part. The terms of the JV could be that the LAQC owns downstairs and the two of you own upstairs. You could base the dollars that each party needs to put in on a valuation, so say 2/3rd's personal upstairs and garage??. and 1/3rd downstairs. Then LAQC could borrow 100% to buy its share and the interest on this loan would be fully tax deductible. Your partner could charge a management fee to the LAQC for managing the property. Thus creating more income for her, taxed at 12.5% and more off a loss to give you a tax refund at 38%. As LAQC has 100% mortgage, it would most likely incurr a reasonable tax loss, which would give a resonable tax refund at 38%.

But - LAQC would cost around $600 + GST to form
Cost to set up JV ?? $1,000 + GST
Legal costs to change ownership $1,000?
Hassle changing loans?
Annual LAQC costs of $1,000 + GST approx, vs $500 in p/ship

So need to weigh up costs vs benefit!

[Rosco]

Forgot to add.

If you have already settled, changing to another structure would be pushing it a bit. The problem is having a "commercial reason" to change over.

Ross

[mortgage broker]

Wow, Ross I had no idea you could set it up that way. Are you sure, it sounds too good to be true, I guess this could be used for any home and income, ie granny flat on the same property?

[Rosco]

Most things are possible. BUT, generally you need to talk to an expect such as GRA or myself BEFORE settlement. Afterwards can be too late.

And another BUT

- Cost can be more than benefits
- Make sure you are not pushing the boundaries too far

Ross

[hq_guo]

hey guys, thanks so much for the ideas and thoughts!!

Our settlement date is in slightly more than a month. We're currently looking for and comparing different ideas and options for managing the rental income.

Rosco, what you said really showed us a whole new world! But considering the potential income level (around $250/week), JV LAQC might be an overkill