I am having an issue with a couple of properties owned in two LAQC's. We have had the opinion of an accountant but would also like to share this around and take comments and expertise.
We have a property owned in XX Ltd with a recent valuation of $280k and a loan of $140k.We have owned it for 2 years and its cash positive. This was our first property purchase. We had no intentions other than buying an investment property in the hope it would be cash positive once rented. We registered XX Ltd for GST and then claimed GST on the purchase price which refunded us for the renovations.
A year later we bought a property in YY Ltd. This property was a Buy and Hold from day one. YY Ltd is not GST registered.
Our accountant is advising us that as we have claimed gst on the XX Ltd property the IRD will assume it was bought with the intention to sell at a profit and is therefore subject to capital gains tax. This then has the knock on effect of us being classed as traders which could taint our buy and hold activities. A solution our accountant has proposed is the following. "Sell" the XX Ltd property to YY Ltd (YY Ltd states the intention is to buy and hold), pay back the GST and also capital gains tax on the "sale price". Close down XX Ltd. This has the effect of closing down a "trading company" and we are left with a single Buy and Hold. This will chew up either our cash or our equity by having to pay GST and the Cap gains tax and in turn make our next purchase that much more difficult.
We were hoping we could keep the XX Ltd property for 10 years or more which would cancel out any tax due if sold after that (obviously GST will still be due).
Does anyone have other suggestions.
Cheers
We have a property owned in XX Ltd with a recent valuation of $280k and a loan of $140k.We have owned it for 2 years and its cash positive. This was our first property purchase. We had no intentions other than buying an investment property in the hope it would be cash positive once rented. We registered XX Ltd for GST and then claimed GST on the purchase price which refunded us for the renovations.
A year later we bought a property in YY Ltd. This property was a Buy and Hold from day one. YY Ltd is not GST registered.
Our accountant is advising us that as we have claimed gst on the XX Ltd property the IRD will assume it was bought with the intention to sell at a profit and is therefore subject to capital gains tax. This then has the knock on effect of us being classed as traders which could taint our buy and hold activities. A solution our accountant has proposed is the following. "Sell" the XX Ltd property to YY Ltd (YY Ltd states the intention is to buy and hold), pay back the GST and also capital gains tax on the "sale price". Close down XX Ltd. This has the effect of closing down a "trading company" and we are left with a single Buy and Hold. This will chew up either our cash or our equity by having to pay GST and the Cap gains tax and in turn make our next purchase that much more difficult.
We were hoping we could keep the XX Ltd property for 10 years or more which would cancel out any tax due if sold after that (obviously GST will still be due).
Does anyone have other suggestions.
Cheers
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