Accounting for an increasing portfolio

Question from Lisa updated on 1st February 2012:

I currently own my own home and one rental property. I am looking to increase the number of rental properties to around four in the next few years. Currently my income is low and I have around 25% equity in my home and in each rental property. I am trying to work out the benefits of putting the rental property into a LTC or something similar? Limited Liability would seem to be the obvious but I am not particularly concerned about that at this stage. I am interested in being able to deduct more expenses other than currently. My understanding is that I may be able to deduct things such as home office, cell phone and magazine subs but I wonder if there is a size limit on the business (e.g. is one property too small a business) to be able to deduct such expenses. I may be wrong but think these cannot be deducted if your property isn't in a business? I am also interested to know of the implications if I later wanted to refinance to pay down my own home mortgage.

Our expert Mark Withers responded:

A look through company is an unusual entity in that whilst it remains a company with limited libility status, for tax purposes it is "transparent" with its assets and liabilities essentially held for tax purposes by the shareholders. Any profits and losses are therefore accounted for directly by the shareholder which essentially means you achieve the same tax result that you would have if you owned the assets personally. The LTC also has loss limitation rules that are not present with personal ownership. Deductibility of expenditure is a question of it's nexus with the income earned rather than the type of structure used. It is unlikely there are any extra expenses claimable simply because you trade through a company. Costs like home office claims do generally only stack up once there is sufficient actitity to constitute conducting business but business can be conducted to the same extent by a sole trader as it can by a look through company.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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