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Owning Property in Own Name vs LTC

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  • Owning Property in Own Name vs LTC

    I currently own one rental property in an LTC that I'm looking to sell due to it not being suitable for what I'm trying to achieve.

    If I buy more property which I'm intending to do for buy and hold, what are the benefits of an LTC as opposed to buying it in my own name?

    Buying in my own name seems simpler, cheaper and less hassle without any real drawbacks that I can see.

  • #2
    Drawbacks
    - no asset protection
    - no flexibility of ownership without selling

    Search LTC in property talk as there are a lot of old posts on this.

    The right structure depends on your individual circumstances. For example a single person might buy different to couple, or might be different from someone with low income, that might be different from someone with cash, that might be different to a company director. So many factors to consider.

    Ross
    Book a free chat here
    Ross Barnett - Property Accountant

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    • #3
      If you live in one you may want to have in personal name but worth chatting with your accountant and searching through threads as Rosco said

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      • #4
        The main reason for entities is arguably asset protect house hunter, with tax issues closely behind. Owning everything in your own name is generally a bad idea from a risk point if view if something goes awry in your world.

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        • #5
          Originally posted by Bobsyouruncle View Post
          The main reason for entities is arguably asset protect house hunter, with tax issues closely behind. Owning everything in your own name is generally a bad idea from a risk point if view if something goes awry in your world.
          Though something to consider is that often the LTC shares are held in your own name, so the structure provides little protection to your LTC assets.
          AAT Accounting Services - Property Specialist - [email protected]
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          • #6
            If the property is negatively geared and you want to work in Aus there are big disadvantages in using LTC. Offset is only available for personally owned properties.

            If you have kids, as Rosco points out, transferring any assets to them probably requires the sale of the property if personally owned, rather than a share issue/ transfer in the case of LTC. Worth considering if you have kids that want to get themselves a place.

            So you need to do some thinking about what you think you will do in the next 10 years, what your aims are and if your occupation or property makes you vulnerable to being sued for something.(may be something out of the blue, eg tenant falls from deck and injures themselves & tries to sue for unsafe deck or whatever)
            Food.Gems.ILS

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            • #7
              Originally posted by Keithw View Post
              If the property is negatively geared and you want to work in Aus there are big disadvantages in using LTC. Offset is only available for personally owned properties.

              If you have kids, as Rosco points out, transferring any assets to them probably requires the sale of the property if personally owned, rather than a share issue/ transfer in the case of LTC. Worth considering if you have kids that want to get themselves a place.

              So you need to do some thinking about what you think you will do in the next 10 years, what your aims are and if your occupation or property makes you vulnerable to being sued for something.(may be something out of the blue, eg tenant falls from deck and injures themselves & tries to sue for unsafe deck or whatever)
              If you're going to bring in the element of living in Aus while owning NZ property be very careful... ATO will tax you as you leave Aus on the capital gain of the Asset from day you entered Aus to the day you leave - EVEN IF YOU DON'T SELL - this could even be a simple currency gain - meaning no property price increase...

              Example - You have house worth NZD $1million when you arrived in Aus when you leave Aus with that same property worth NZD $1million - no asset price growth in NZD terms. However, when you entered Aus at NZD = $1.10 for AUD $1 - now currency is at parity - in AUD terms you've made a gain whilst living in Aus of ~$100k - which is taxable capital gain...

              I'm not an accountant but i'm pretty sure LTC wont protect you from that CGT.

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              • #8
                Though something to consider is that often the LTC shares are held in your own name, so the structure provides little protection to your LTC assets.
                Then you have bad advisors.......

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                • #9
                  Its not a case of bad advisors, its a case of different options for different investors.

                  LTC owned by a Trust can be great if the Trust has other income.

                  LTC making large losses, owned by a Trust that has nothing else = losses in the Trust which some people can't use.

                  Ross
                  Book a free chat here
                  Ross Barnett - Property Accountant

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                  • #10
                    Have a read of Matthew Gilligan's book Tax Structures 101 for info / pros/ cons of various options.

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                    • #11
                      Originally posted by Rosco View Post
                      Its not a case of bad advisors, its a case of different options for different investors.

                      LTC owned by a Trust can be great if the Trust has other income.

                      LTC making large losses, owned by a Trust that has nothing else = losses in the Trust which some people can't use.

                      Ross
                      Hi Ross,

                      LTC cannot become a QC anymore if LTC is profitable right now ?
                      LTC shares sold to a trust , profits get distributed. but deemed as a sale. But as I understand it, QC is not deemed as a sale ?

                      If buying more properties in future , LTC may not be profitable anymore so LTC better in the long term until such time you don't work anymore and sell to trust ?
                      Last edited by Bluecoat; 17-08-2016, 02:39 PM.

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                      • #12
                        Buying under your own name can sometimes mean selling to an LTC later at a higher price
                        Hamish Patel | ph: 09 625 4693 | mob: 021 625 693
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                        • #13
                          No tax expert but to minimise taxation I believe?
                          Fraser Wilkinson
                          www.managemyrental.co.nz
                          Wellington / Lower Hutt / Upper Hutt / Porirua

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                          • #14
                            Originally posted by FJW View Post
                            No tax expert but to minimise taxation I believe?
                            Hi, just joined this forum to ask this very question but found the thread to do so. Can't private ownership claim the exact same taxes from IR3?

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                            • #15
                              Hi Jack,

                              It depends. There is no perfect structure for everyone, as everyone is different.

                              Examples (completely made up!)

                              1) Jack buys rental in personal name. Large loss of $10,000. This offsets his low income, and only saves tax at 17.5% or $1750.
                              Jill his partner earns a lot more, so if had used an LTC, 99% owned by Jill, then tax saved mainly at 33% saving roughly $3300 tax!

                              2) Jack is director of Dodgy Finance Company. Jack buys rental in his personal name.
                              Later Jack becomes liable for loss in Dodgy Finance Company, so losses rental too.
                              If had owned in a Trust instead, then the asset could be safe and protected if done right.

                              A better example now might be liability under Health and Safety, ie a plumber owning a rental and getting sued or being held liable.

                              3) Jack buys 10 rental properties
                              then decides that he has a high Health and Safety risk, and wants the rentals in a Trust. His lawyer charges $750 for each transaction, so 10 sales and 10 purchases into Trust. Costs $15,000 in legal costs. Plus a lot of hassle with banks to change over.

                              An LTC at the start could have saved the $15,000 in legal costs! and simplified the changeover.


                              As with a lot of structuring or tax questions, it is best to talk to an expert and get expert advice.

                              Ross
                              Book a free chat here
                              Ross Barnett - Property Accountant

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