Ownership restructure

Question from sreedhar updated on 1st August 2018:

I have currently got an investment property, which is in joint ownership. It has a mortgage of $572,000 and a market value of around $820,000.

I want to transfer my investment property into our company, which is in joint ownership with my wife. I am not sure on the exact process but I guess I can sell property to my own company at market value and manage the property from company. And that by doing this I can capture the profits for further investments.

I am not sure my assumption is correct, so any suggestions would be very much appreciated!

Our expert Mark Withers responded:

Restructuring now needs to be carefully considered against the backdrop of the five year bright line test and tax avoidance. The bright-line for the property re-sets if a company you are associated with buys it from you.

You haven't stated what your motivation for this change is but if it is to increase gearing on the property you need to ensure that the basis for the restructure is commercial and not solely self serving from a tax perspective. If, for example, the property is jointly owned now and the company is jointly owned by the same people, what is the commercial basis for the change ?

Tax losses on rental properties are also now set to be ring fenced so restructuring to create losses that you may not be able to offset against other income may now not be wise if it means five more years to run under the bright-line. So, overall, my suggestion is to get really clear on what advantages you see in doing this and weigh them carefully against the ring fencing and bright line test before progressing.

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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