To, or not to LAQC?

[carolvw]

Hi everyone

I have been told by my Accountant that there is absolutely no reason to set up an LAQC if you own IPs and:

- Are flatting
or
- Already own your own home and have purchased an IP

He stated that the only reason why you would set up an LAQC is if you already had an IP and then wanted to purchase your own home.

Is this correct and what would be the advantages/disadvantages?

Many thanks
Carolvw

[roseneath_rat]

Carol there are a number of prior posts regarding structures in general, and LAQCs in particular.

Structures are generally about layers of separation, ie- to distance yourself personally financially from the liabilities of your investments.

I suggest you have a sift through previous threads & repost specific questions for discussion.

[drelly]

LAQC's enable you to write off losses (including depreciation) against your personal income, so your personal living situation is irrelevant. Even if you own your own home, if you're prepared to transfer it to the LAQC as an IP and repurchase, it's a great way to maximise tax deductibility. Since you're going to buy your own home, it's an ideal time to start an LAQC.

There are pro's and con's to using LAQC's, so do a search for previous threads as it's been discussed many times.

Consider things like...

- will the property continue to make a loss (on paper)?
- what about transferring assets to a family trust - do you have enough time if you start an LAQC?
- if you want to do trades, you can't use the LAQC.

cheers,
Dave.

[CJ]

LAQC give additonal flexibility. If you never use this, it would have been a waste, but if you do utilise it, it will be VERY thankful you did.

The accountant is true that in the first year, you will see no additional benefit and will incur extra cost, but it is 3-10 years down the track that it will make a diference. EG:

If you ever think you will have a trust, you should use an LAQC or else you may have depreciation recovery issues.

[drelly]

What CJ means regarding depreciation recovery is that if you transfer an individual property to a trust, then you will be liable for depreciation recovered. However, if you transfer ownership of an LAQC to the trust, the depreciation is not recovered and can in fact continue - although not against your personal income.

eg; if you have claimed $30k in depreciation over the years (and therefore saved $10k in taxes), if you sell that property into a trust, you are liable to repay that $10k to the IRD. If you sell an LAQC to a trust, you don't have to repay it as the LAQC still owns the property.

cheers,
Dave.

[essence]

LAQC Depreciation

eg; if you have claimed $30k in depreciation over the years (and therefore saved $10k in taxes), if you sell that property into a trust, you are liable to repay that $10k to the IRD. If you sell an LAQC to a trust, you don't have to repay it as the LAQC still owns the property.

It is the SHARES of the LAQC that are sold to the Trust, not the property itself. Thus the property does not change ownership per se, and the trust can then receive the loss from the LAQC without the depreciation clawback.

The Trust can then distribute any loss to the beneficiaries, without the depreciation clawback.

[mattcamp]

It is the SHARES of the LAQC that are sold to the Trust, not the property itself.

Does this only occur at $27000/year though, or is there some way to transfer your entire LAQC to the trust in one go? (without incurring gift duty)

I'm just getting started in PI (haven't yet purchased my first)... I'm reasonably young (under 30) and have a good income so I intend to purchase quite a few properties (initally negatively geared) over the long term...

One accountant said definitely get an LAQC, the other said don't get one as eventually you'll start making a profit and then having an LAQC isn't such a good idea.

All a bit confusing really.

[drelly]

Yes, it's only $27k a year and it's an issue for me at the moment with all the capital gains over the last year or so.

cheers,
Dave

[mattcamp]

Bugger... so if you're investing for capital gains (longer term) rather than cashflow, a trust might be better.... just means it's gonna be even more cashflow negative

[drelly]

Well.... it all comes down to age and attitude to risk. If you never intend to use a trust then it doesn't matter does it?

Personally, I've decided to review my LAQC in another year and probably consider a transfer to my trust at that time. From now on, all buy and holds will go directly to the trust as well.

I'm 35 now and it doesn't take that much equity before I'm looking at 20+ years to get it all transferred. So, yes, age is a real factor.

cheers,
Dave

[kalovatt]

I personally think LAQC's are a waste of time and are over-rated. The only perceived benefit is as previously mentioned about transferring the shares to a trust to avoid the depreciation clawback. It needs to be balanced against the extra cost of a separate tax return and extra documentation requirements. I have often looked at the LAQC arguments over the years and have not seen a convincing argument to form one.

But thats just my opinion............

[Mark_B]

LAQC's and Income Tax Variations

Can anyone tell me if the losses on negatively geared properties held in an LAQC can used as the basis for submiting an income tax withholding variation (IR23BS)?

(Thus, giving you more money week in week out, rather than a lump of cash at the end of the financial year)

Ta

Mark

[tricky]

Yes.
That's what I've done. Better in my hand today than late next year.