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  1. #1

    Default 1st property to be a rental property, LAQC or not, newbie question

    Hi, I'd like to buy a 2bedroom property. It's gonna be my 1st property and it's gonna be a rental property. The property is 200k, and I'm gonna borrow 160k. It looks like there wont be a big diff betw rent I get and mortgage I pay. 1. I am not sure if I should use LAQC or just use my own name? 2. What if a LAQC propert get profit. Can I just change it from LAQC to my own name or something also. totally confused. Cheers

  2. #2

    Default

    hi Nintiger, I think you should talk to an accountant to get an understanding of the differences, pros and cons of each and whether or not it would suit your situation and goals. I was struggling with this with my first property, but understanding the differences helped me decide at the end.
    I also suggest you do a search on the older threads as I believe a lot has been discussed on this topic.

  3. #3
    Join Date
    Sep 2008
    Posts
    197

    Default

    If your mrs is a gold-digger then you might want to purchase in an laqc, just a thought. My understanding is that the pros and cons are basically the same whilst you're starting out, i.e. you can claim the same sorts of things as tax-deductions, off-set any rental losses against your personal income (or if a laqc, your personal income as the director of the company) etc (please correct me if i'm wrong anybody). but it might be better to have rentals in an laqc if you see yourself becomming a trader in the future, as you wouldnt want your rentals to be taxed on capital gain.

  4. #4
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,684

    Default Need to learn a little more

    Hi nintiger,

    You need to learn some more information about this subject in general and make sure you only take advice from the right people.

    Normally first question is

    1) How do you earn money? Are you just a salary wage earner? Or do you own a business? If you own another business, then there is much better ways to structure then I'll put below.

    2) How risky are you? If you are very risky, then a Trust may be better for asset protection. A Trust could protect against future partners and other potential creditors.

    3) Do you have a mortgage on your personal house? If you do, put the $40k cash into your personal house as your personal home loan won't give a tax deduction.

    4) Have you done any trading in the past? If so you may be tainted, therefore under current rules you would taint an LAQC, sole trader or partnership. Under new rules expected from 1/4/09 you will taint everything.

    Then look at options

    Trust - Great for asset protection, but losses cannot offset personal income. If you are expecting a big winfall of money, or could be sued, nearing retirement, or buying a really positive cashflow property, then a Trust can be great.

    LAQC - Loss Attributing Qualifying Company - Big advantage is flexibility. Losses go to shareholders in proportion to shareholding. So if you wife earns huge money and you earn very small, wife could own 99% of shares and therefore receive 99% of losses. Then if your wife becomes pregnant and stops work, you could swap to 99% to you and 1% to her. Also later as the property becomes more profitable after depreciation, then could change shares to a Trust (get more info on this!)

    Sole Trader - Old fashioned. If long term you want to change the ownership, then you have to sell it, which normally costs legal fees and could cause depreciation recovered.

    Partnership - Old fashioned. If you and your partner/wife are on different tax rates this won't be the most tax effective option.


    Generally, you can claim all the same deductions under each entity type.

    Ross
    Not sure where to start, book a free chat for 5-10 minutes https://cswaikato.co.nz/services-pro...s-hamilton/201
    Ross Barnett - Coombe Smith Property Accountants


  5. #5
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,684

    Default

    Quote Originally Posted by Rizowz View Post
    but it might be better to have rentals in an laqc if you see yourself becomming a trader in the future, as you wouldnt want your rentals to be taxed on capital gain.
    We are expecting new association rules from 1/4/09, which basically taint everything if you are a trader! This would only affect long term holds after tainting occurs.

    Ross
    Not sure where to start, book a free chat for 5-10 minutes https://cswaikato.co.nz/services-pro...s-hamilton/201
    Ross Barnett - Coombe Smith Property Accountants


  6. #6

    Default

    Thank you guys. I am a pure newbie. I'm just a salary earner with some deposit at bank. I dont own any property. I just heard LAQC recently, so thought if I buy a rental property I could buy it under LAQC.

    I also have question that what if a property in LAQC does not get any loss or even get profit, eg if the diff betw the rent and mortgage per week are similar or even a little bit positive? In this case, should I consider use LAQC at all, or just use my own name?

  7. #7
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,684

    Default

    I don't really have all the information but this is what I would personally do.

    Buy in LAQC to give flexibility.

    1) If you want to buy personal house in the future, the LAQC could borrow to repay your $40k, and then make this tax deductible.

    2) Flexibility of changing shareholding to a Trust long term.

    Even with your $40,000 in the property, it is still going to make a small cash loss. Then with depreciation, there will be a reasonable tax loss.

    Sole Trader would be cheaper (free) to set up and cheaper for annual accounting work. But difficult to get equity out if you want to buy a personal house.

    I think overall LAQC is better long term

    If LAQC makes a taxable profit, no problem. Either company pays tax at 30% or company can allocate shareholder salary to you. Most likely you would cancel the Loss Attributing part and just become a normal company at this stage and maybe change the shareholding to a Trust. But you are probably 5 years + from this.

    Ross
    Not sure where to start, book a free chat for 5-10 minutes https://cswaikato.co.nz/services-pro...s-hamilton/201
    Ross Barnett - Coombe Smith Property Accountants


  8. #8
    Join Date
    Sep 2008
    Posts
    197

    Default

    Rosco, I myself am in a similar 'starting out' situation to nintiger, although i'm about to purchase my second property and hopefully later this year my third. It seems a pity to start a new thread, if I were to pm you a few questions seeking your advice would you be okay with that?

    Michael.

  9. #9
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,684

    Default

    Hi Michael,

    Go for it.

    Ross
    Not sure where to start, book a free chat for 5-10 minutes https://cswaikato.co.nz/services-pro...s-hamilton/201
    Ross Barnett - Coombe Smith Property Accountants


  10. #10
    Join Date
    Sep 2005
    Location
    Upper Hutt
    Posts
    262

    Default

    I purchased my first two properties in my own name. However when I came to buy my PPOR I sold them to a LAQC. This meant I extracted both my cash input & capital gain (100% over two years between 2002 & 2004). This resulted in me having no personal mortgage and all borrowing matched against rent.

    There was depreciation claw-back, but was not much in the wider scheme of things.
    The Son of Glenn


 

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