Transferring debt on PPOR into LAQC

[SJL 01]

Hello,
I undestand that debt on PPOR can be transferred into the LAQC, however I am getting some very different opinions on this from my accountant and others that I have asked.
If possible can anyone give me a brief idea of what has to happen for this transfer to take place. My LAQC has 200k of equity in it, that is total equit values less debt, my family home has 200k of mortgage, do you see wher I am going this with this ??
Many thanks if you are able to offer words of advice.

LL

[murray-spi-investments]

Look back at several posts over the past year on the subject. Most accountants do not support clients transferring their PPOR into an LAQC just for the tax benefit. The IRD put out a press release on this topic about 2 months ago stating very clearly they view this as tax avoidance and the release was posted on property talk.

Some "advisors" may recommend selling your PPOR to an LAQC and renting the house from the LAQC as a tax planning strategy - I do not. It is clearly intended to avoid tax by transferring borrowings of a personal nature into a quasi arms length debt. In time the IRD will take a active approach to pursuing taxpayers adopting such an approach.

Your only legitimate approach is where you are considering buying a new PPOR and renting out your current PPOR (usually when it is no or low mortgage). You can then sell your current PPOR to an LAQC and use the proceeds to pay for the new PPOR.

[SJL 01]

Hi Murray
Thanks for your answer, certainly beyond the call of duty at 3am !!
Prehaps I wasn't clear in my question as I understand the issues of selling a PPOR into a LAQC, what I am really asking about is moving the debt into the LAQC, which I understand (limited understanding!) can be done through the LAQC declaring a capital dividend, thus taking on the debt and hence it would now be tax effective debt as opposed to not.
The ownership of the PPOR would not change through this transaction.
Cheers
LL

[CJ]

YOu cant borrow money in an LAQC for the purpose of paying a dividend.

See post below which should have more detail.

http://www.propertytalk.co.nz/postt2121.html

[drelly]

Lucylou... as Murray said, the way to move the debt to the LAQC is to sell the property to it which would involve the LAQC raising finance and paying you (the current owner) these funds. You can't just shift debt without shifting the asset.

[SJL 01]

Hello all
Just spent the last week researching this area. Our LAQC will shortly be declaring a Captial Dividend, (which came about as a result in the values of the properties increasing) which will be credited to the Shareholders Current Account. As the LAQC doesn't have funds to pay this out, a loan will be raised. I have been told this loan WILL BE tax deductible.
We will use this loan to pay off our PPOR loan, thus in effect transferring that debt to the LAQC, obviously this action is motivated by our concerns for asset protection, however as a side effect there will be some tax advantages.
Interested to know your thoughts, since you are mostly of the opinion that this can't be done.
LL

[BrentM]

Interesting

Well thats actually sounding quite clever.

I would like to do my own research on this and report back

I agree a capital dividend can be paid tax free in an LAQC (or QC)
Generally a re-finance of a shareholder loan in a company also generates a tax deductible loan.
Is this an arrangement specifially designed to reduce tax? (is there any other commercial reason to credit divi in this way and then borrow to pay it out?) - because if not it could be challenged under Income Tax Act general "anti-avoidance" provisions.
Because this was due to the divi which is "capital in nature", is this deductible interest in an LAQC?

I'll be back

[SJL 01]

Hello,
Thanks for your reply. I am interested to hear what you uncover in your research.
This Capital Dividend is motivated by our concern with asset protection, any tax benefits are simply a by product and certainly not the reason behind the transaction.
As you say, if tax minisation was the objective we could come under the spotlight of the IRD.

LL