Moving on from LAQC

Question from Kevin updated on 26th February 2013:

My wife and I have owned a rental property in a LAQC since 2005. With it turning cashflow positive do we have to pay company tax of 28%, as well as personal tax of 33% if we want to use the business income personally? Also, aren't we better off to sell the property to ourselves and not have a double tax issue. The market value is probably more than what we paid for it as well, does this mean that we will need to pay tax on the profit of the sale as the business made a profit from the capital gain. This property is part of our future retirement fund.

Our expert Mark Withers responded:

Your LAQC will have either have become a QC or a LTC. Regardless of these election choices a capital gain on the property can be flowed to the shareholders tax exempt. With regards to the rental profit, the QC pays tax at the corporate rate of 28%. If this retained profit is then distributed as a dividend the shareholders get to claim credit for the company tax paid in the form of an imputation credit. This leaves dividend withholding tax of 5% payable to top the tax up to the 33% personal rat double taxing.  Under the LTC profits are flowed directly to the shareholders who pay the tax personally at 33%. There is no option to retain the income in the company and enjoy the benefit of the lower 28 % corporate tax rate.

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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