Property trader and property investor at the same time.

[Propertytrader]

Hi guys, i need some advise, i am currently a property trader,but i want to buy some properties for investment.

Talking to accountants i was told if i do that, my properies will become tainted.

I was wondering what would be the best structure to hold the investment properties under, for example a family trust, or trading trust, so the relationship test does not apply.

I wonder why i cannot be a property trader for some properties and investment property for others, as it is easy to distinguish what property makes a good long term investment and what property makes a good trade.

I was thinking if hold my investment properties under one company and the trading ones under my legal name,without being tainted, but please if anyone has some experience,will be really appreciated,thanks very much.

[ScottSI]

Tainting is easily managed as many people do it.

1 - Use separate entities. The long term holding company should be the stable well protected one.

2 - Document, document, document - You need to prove why you bought that house to hold etc.

3 - Time is your friend - If you are holding for 10+ years things get easier but if you have to sell one of your holds earlier have a very good reason (see comment 2)

Traders earn their income by selling which they repeat regularly (so pay tax on sale proceeds), investors earn their income from rents (so pay tax on positive cash-flow). If an investor sells and sees capital gain that is not seen as income currently as no CGT so long as it is not repeated regularly. You need to clearly show your intent on each purchase if doing both.

[Eugene]

Be very careful. ScottSI always talks sense IMO, but I would still recommend asking Ross Holmes or Matthew Gilligan

[Propertytrader]

Thanks Eugene, how can i get in touch with Ross Holmes.

[Eugene]

Coombe Smith Property Accountants in Hamilton,
cheers

[Propertytrader]

ok thanks, Eugene,and i have emptied my inbox now,please send that private message thanks

[spaceman]

Tainting is easily managed as many people do it.
.......

I disagree.

In the olden days it was relatively simple to have a multiple trust set-up and avoid tainting.

Since the relatively recent law changes a multiple trust structure will no longer work .....that was kinda the whole point of the law changes.

I have yet to see/hear of anybody providing a sensible solution.

1 - Use separate entities. The long term holding company should be the stable well protected one.

This simply won't work as the association rules have changed

2 - Document, document, document - You need to prove why you bought that house to hold etc.

A document doesn't prove intent.....additionally intent doesn't matter if you are a trader. If you are a trader your intent to hold a property as a long term investment doesn't matter, you're trading taints that investment.

3 - Time is your friend - If you are holding for 10+ years things get easier but if you have to sell one of your holds earlier have a very good reason (see comment 2)

There is no "10 year rule" if you are a trader/tainted holding time doesn't matter. You purchased the property with intent to resell at a profit and income tax is payable on that profit.

Then again I could be completely wrong.

I would love to be shown a legit way around the current associated persons/"tainting" rules .......have at it.......physic spaceman predicts a long and fruitless wait.

From an earlier thread.

Special tax rules for businesses in property-related activities


If you have an association with people in certain property-related industries there may be a tax impact on all or some of your property transactions. even if you personally are not a property dealer, developer or builder.
These impacts could mean the difference in the gain from the sale of a property being treated as taxable income or as a non-taxable capital gain.
Associated person rules may make a property sale taxable when there is an association with a:

• property dealer when the property was bought
• property developer when the property was bought
• builder when significant improvements started on a property.

In addition, the associated person rules changed for land acquired on or after 6 October 2009 with the effect of widening some associations.
For these people, even properties that weren’t bought for business purposes may be taxable if the property is sold within 10 years of:

• the purchase or
• completion of improvements (for builders).

These rules may apply to any properties bought during the period of your property-related business activities, even if you sell a property after you’ve ceased those business activities.

http://www.ird.govt.nz/property/prop...es-businesses/

Cheers
Spaceman

[Wayne]

Be very careful. ScottSI always talks sense IMO, but I would still recommend asking Ross Holmes or Matthew Gilligan

You mean Ross Barnett at CoombeSmith Waikato
Ross Holmes is the trust dude.

[Propertytrader]

You mean Ross Barnett at CoombeSmith Waikato
Ross Holmes is the trust dude.

Morning Wayne,have you deal with Ross before?

What is your personal experience with him and his costs for advise,etc,thanks

[Rosco]

Property Trading and minimising tainting affect is complex, and if you are looking for the cheapest accountant to do your work, you are not going to get good advice on this!

Ross

[Maccachic]

Morning Wayne,have you deal with Ross before?

What is your personal experience with him and his costs for advise,etc,thanks

Ross is Rosco (above) have a look thru his posts on property talk, he provides us with loads of advice on here.

[Eugene]

Oops yes. Thanks. I did mean Ross Barnett. He helped me out of a tricky structure and referred me to Matthew Gilligan after a skiing mishap.

[Wayne]

Morning Wayne,have you deal with Ross before?

What is your personal experience with him and his costs for advise,etc,thanks

I do deal with Ross - his advise is good and his charges reasonable IMHO.
As someone said - read his posts and judge for yourself what he gives away for free here!

[Propertytrader]

Morning Eugene thanks for that,can you please provide some light as what was your skiing mishap, so i dont make the same mistake,thanks very much for your help.

[Propertytrader]

Thanks again Wayne, any links to his posts.