Taxable gains

Our Experts Answer:

There’s a bundle of issues here. Firstly, if a property was acquired with an intention to sell it to make a gain two years on, this gain is taxable under the intent provisions in CB6 and is not a capital gain.

The status of a company will also determine the taxing outcomes. It could be a standard closed company, a look through company (LTC) or a qualifying company (QC). Both closed and qualifying companies can distribute salaries to working shareholders, which may offer some flexibility depending on who does what.

Closed and QC companies can also retain profits and take advantage of the lower 28% corporate tax rate - provided the profits remain in the company and are not distributed. LTCs cannot retain profits nor allocate salaries so you simply have to flow the profits to the shareholders in accordance with shareholding.

Be very careful before you go changing the ownership of properties. If the company is a closed company any gain it makes by selling a property to a related party is a tainted gain which is fully taxable to the shareholders when distributed, even on windup. Trusts are a good option for profitable properties because trustees have the flexibility to distribute income to beneficiaries or retain profits.

The new bright line test of sale within two years, tax avoidance rules and the tainted gain issue above will all need to be considered before you attempt any restructure. Tread carefully.