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  1. #1
    Join Date
    Apr 2006
    Location
    Lower Hutt
    Posts
    231

    Default Lets talk about entity structures

    I searched and could not find the answer to my specific question.

    I'm looking at undertaking a combination of Buy and Hold and property renovating for trade. Do I need two separate entities (ie an LAQC and a Trust) or can i undertake both activities through an LAQC. Why or Why not?

    [EDIT : I have removed comment regarding tainting until i have researched it further.]

    This question should be directed at an expert I know, but I wish to discuss it openly a little.


    Cheers
    Last edited by Volatile; 21-09-2006 at 01:36 PM.
    James

    "Time is the great equalizer. It will either promote or expose you." -Jeff Olson

  2. #2
    Join Date
    Nov 2005
    Posts
    3,286

    Default

    James,

    Not sure I undersatnd the question.

    If you don't care about tainting of paying tax then why not just do everything in one entity, whatever that might be, even in your own name - it's a lot easier.

    xris

  3. #3
    Join Date
    Dec 2004
    Posts
    2,081

    Default

    James,

    You can not talk about combining a B&H strategy with the Trading strategy without realising the implications of "tainting". You may not be interested in the discussion of tainting in this thread however the issue of tainting determines the best structure.

    Your question is covered previously and extensively in many previous threads, just do a search on "structures" or "trading structures".

    The simple answer to your question and now a common practice is set up a "Trading Trust" with your B&H being in either an LAQC, or B&H Trust or a combination of the two.

    Finally you should get specialist advice on pursuing such a strategy.

    Cheers,

  4. #4
    Join Date
    Jun 2005
    Location
    auckland New Zealand
    Posts
    5,236

    Default

    Hi Volatile. The forum has truckloads of stuff about entities but the answer to your question is you need a buy and hold entity and a trading entity.
    Any competent accountant/structure person can explain why.
    Your statement re tainting indicates you may not understand the significance of it. The fact that you think you will never sell a buy and hold is a bit naive but more importantly if YOU get tainted then your entire family also gets tainted. So are you sure that none of your immediate family will never ever sell a property they purchased as a buy and hold or even their own home? Unless you can answer "Yes I am certain that no one in my family will ever sell a property they own" then you need 2 entities.

  5. #5
    Join Date
    Feb 2005
    Location
    Auckland
    Posts
    624

    Default

    Hi James

    I have an LAQC set up but these are generally done to offset any losses you may have with the property such as renovations, maintenance, interest charges. I have also set up a trading trust for the obvious but you do not have to go to the expense of doing this but it has been advised from specialists that this be set up, especially if it is going to become a frequent activity.

    So in short (and I am no expert, YET) it has been advised
    that you should keep the entities separate, that way it is easy for the IRD to see what your intensions are as far as buy & hold or trade. I am no expert but this is the way I see it from the expert advice I have been given.

    Hope this helps.

    FH.

  6. #6
    Join Date
    Apr 2006
    Location
    Lower Hutt
    Posts
    231

    Default

    First thanks for the replies people, I do see how it would be beneficial to keep the two strategies seperate and make sure intentions for each property are duely stated/provable.

    Sorry my question was not entirely logical.

    I will do more searching
    James

    "Time is the great equalizer. It will either promote or expose you." -Jeff Olson

  7. #7
    Join Date
    Apr 2006
    Location
    Lower Hutt
    Posts
    231

    Default

    on a side note, does anyone use a LAQC for trading instead of a trust?
    James

    "Time is the great equalizer. It will either promote or expose you." -Jeff Olson

  8. #8
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    5,084

    Default

    The reason that Trusts have the potential to protect you from tainting is that they put some (paper) space between the entity doing the trading and the entity doing the B&H.

    Because 'related persons' rules apply to anyone holding a significant interest in the two entities, having two LAQCs with you as 50% or 100% shareholder would not put enough space between the two entities.

    Having said that, some people have done their first trade/reno inside their B&H structure, just to see if they have a liking for it. If they do, then they can set up the more protective structures. If not, its hard (but not impossible) for the IRD to taint based on a single transaction - remembering that intention at time of purchase is the important thing to have documented.

    cube
    DFTBA

  9. #9
    Join Date
    Apr 2006
    Location
    Lower Hutt
    Posts
    231

    Default

    Quote Originally Posted by cube View Post
    The reason that Trusts have the potential to protect you from tainting is that they put some (paper) space between the entity doing the trading and the entity doing the B&H.

    Because 'related persons' rules apply to anyone holding a significant interest in the two entities, having two LAQCs with you as 50% or 100% shareholder would not put enough space between the two entities.

    Having said that, some people have done their first trade/reno inside their B&H structure, just to see if they have a liking for it. If they do, then they can set up the more protective structures. If not, its hard (but not impossible) for the IRD to taint based on a single transaction - remembering that intention at time of purchase is the important thing to have documented.

    cube
    This is the part im strugglying with, wouldn't the courts just see through the "sham" and see that you really control the trust and the LAQC?

    Sounds like alot of shuffling papers to me.

    From my basic reading of the income tax act, it seems thats if you can prove what your intention was then you don't have a problem.
    James

    "Time is the great equalizer. It will either promote or expose you." -Jeff Olson

  10. #10
    Join Date
    Feb 2005
    Location
    Auckland
    Posts
    624

    Default

    I think that is pretty much it.

    Circumstances in life change, why should property be any different.

    FH


 

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