Will LAQC changes encourage investors to sell?
Question from Alamat updated on 18th November 2010:
Our expert Mark Withers responded:
*This answer was correct at time of answering, 4th June, 2010
The changes to the LAQC rules are far reaching and a final position is not yet known because the legislative changes are still open for submission. I can't really agree with you that the budget was all that bad, sure, depreciation is gone, but that was only a timing advantage, you have swapped this for a permananent tax cut of 5%.
Rents will almost certainly start to rise making your investment returns a whole lot better. To achieve this though you obviously have to actually raise them! LAQC's will still have their place in the world. Losses will still attribute to shareholders. Yes there is a loss limitation but 99.9% of LAQC owners will be guaranteeing their company debt which is counted in the partner base calculation.
Careful planning is needed now though to assess the companies profitability with a view to reviewing shareholdings prior to the changes. After the change, a transfer or sale of shares will trigger the underlying disposal of the company assets to the seller which of course leads to depreciation recovery.
I can't see most property LAQC's opting out of the regime though because it would make it very difficult to extract capital gains without the dividends being taxed. The only way out would be to liquidate the companies. If you intend transfering properties out of companies and believe your building may have fallen in value you will need a registered valuation to prove it. Suggesting that this may somehow be possible simply because the govt has changed the rules on you is, to be blut, living in dream land.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.