The correct structure for on-selling?

[seanw]

Hi everyone.

I just want to be perfectly clear on this before I start:

I am going to begin some property hunting and on-sell good property to any willing buyer. I won't be buying anything - only charging a finders fee for my leg work.

If I'm not 'Trading', is a standard limited liability company appropriate? I'm not purchasing property for myself YET, but will be doing buy and hold later in my investment plan - once I have built some equity up.
Obviously I want to avoid tainting. From what I understand - doing property hunting won't cause tainting - is this correct?

Feel free to add any other key points I may have overseen.

Thanks everyone. PropertyTalk is fantastic!!

[Chemill]

This sounds like just a straight forward limited liability company.

If you want to be super cautious you could have a trust to be the majority shareholder of the company (eg 99% trust and 1% yourself). This just adds an extra layer of protection, you hold the 1% so dividends can be paid direct to you rather than via the trust.

I would definitely advise talking to an accountant that is knowledgable in this area. A few hundred $ in advice saves you major headaches down the track.

Chemill

[helpmehelpyou]

No Problemo

if you are purely looking for investment properties for others with intensions of charging a finders fee then a limited liability company is fine.

when you decide to buy property for the purpose of onselling then you will need to see a lawyer who has good knowledge in accounting. you will need to ring around and find a commercial law firm who has a qualified accountant.

[tjthorne]

I agree that a standard company will do the trick. I agree with Chemill where I trust is suggested. This can also help to cap the tax rate on profits at 33% if you're planning a making a fair bit of coin.

Finding property won't cause 'tainting'. The closest provision that could cause tainting would be for a person 'in the business of dealing in land'. Case law has described dealing in land as involving the purpose and resale of land in substantially the same condition. As you are not the person acquiring the land, this or any other land transaction provision won't apply to taint any property you acquire in the future.

Tony
www.thorneaccounting.co.nz

[kolzee]

chemill/tjthorne,

dividends have to relate to share ownership so you can't just go distributing profits solely to the 1% owner??

My understanding is that there are rules about having more than one class of share to get around this as well but not certain about this part??

[Chemill]

Hi Kolzee.
Basically I'm not sure on that one. I'm only regurgitating what I've learnt from my accountant.

My only guess would be that the preferrential shares are mainly for the public companies - with stricter rules on dividend disbursement. While the small private company might be more relaxed on dividend distribution.

In any case I was going to leave all that to my accountant to sort out.

Chemill

[cube]

Can I throw this thought in to the mix.

If a group of PIs got together and jointly (in all their own names) brought and sold property, they would, I imagine all be classed as traders.

What happens if that same group of people own shares in a company, and only one of them is the sole director. The company buys and sells - are they still all traders?

How big does a company need to be to remove the shareholders from the implications of the company's activities?

cube

[tjthorne]

Kolzee,

You're right that dividends have to be paid based on the share ownership. Often a trust will own 98% of the shares so that is receives most of the dividends.

You're also right about rules for streaming dividends based on different classes of shares. This situation is known as a "market circumstance" and rules exist to prevent it.

[tjthorne]

Cube,

You're tainted if you are associated to an entity that is a land trader. A person will be associated to a company if they own 25% or more of the shares. So if there were 5 equal investors then none would be tainted.

[JohnL]

There are some advantages of using a trading trust for an income earning entity. Distribution is entirely flexible between beneficiaries, not tied into share holding or 'effort' put in, so you can be more tax efficient if appropriate.

Secondly, you can transfer profit from your income earning company to your wealth trust (where you put your own home), pre-tax via a common beneficiary. You can also transfer losses from your future buy and hold trust into your 'wealth' trust. This means you can by-pass the use of LAQCs to extract the losses and have the asset protection up front. Also there is no potential future issue re tax avoidance and LAQCs which seems a topical issue at the moment.

This is basically my understanding of what Garth Melville recommends when you aren't a wage and salary earner.

Garth is the one of the best people to go and
see about your future structures. I have used him on all my current structures and I wish I had seen him 12 years ago and I wouldn't have a few rentals in my own name now and a couple of companies I'm trying to wind down.

John