Question from Dhaval updated on 17th August 2018:
I have a rental property that is currently rented out. It is held in mine and my wife's name. We bought the property more then two years ago. I am looking at transferring the property to a Look Through Company (LTC) as my tax bracket is more than my wife's. Also, we intend to do the transfer to LTC at current market value which is approx $300,000 more then the purchase price two to three years ago.
Can you please advise under what circumstances (ie: what conditions need to be met) can a rental property be transferred from individual names to an LTC name at the current market value? We are also open to adding our son's name to the LTC share if it helps in getting it transferred.
Our expert Mark Withers responded:
Firstly, be very very, careful that you are beyond the five year bright line test. It would be a massive own goal to transfer it and be taxed on the $300,000 gain. There is no exemption from the bright line rules even though it’s a related party transaction.
Secondly, the law simply requires the sale to a related party to be accounted for at market value.
Thirdly, I would be nervous that a decision to restructure designed simply to direct losses to yourself would not jump the standard for tax avoidance. The restructure is not commercially motivated, only motivated by the incidence of tax.There would have been an opportunity to use the LTC originally, but to restructure it now to alter the tax rate may not fly.
It’s also a costly exercise. Perhaps let sitting dogs lie.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.