Accountants for Property Investors

Rental Properties – Which  Business Structure Should I Use?

What is the most appropriate entity in which to purchase the property?

This will very much depend on your personal circumstances and your property investment goals. The right structure will ensure that you maximise your property yields and minimise your property tax.

Frequently asked questions relating to structure include:

• Should I set up a look through company (LTC)?
• Should my trust be a shareholder of the company?
• How do I separate my business and property investment structures?
• How should I structure my finance to maximise my interest deductibility?
• How do associated persons rules affect me?
• How do I pay less tax?

ABA can guide you on the above as your rental property accountant.

Brightline Test

The two-year bright-line test was introduced on 1st October 2015 and applies to residential land that a person first acquired an interest in, on or after 1st October 2015.

Note that the “start date” for the bright-line test is the date on which the instrument to transfer the land to the person was registered under the Land Transfer Act 1952.

The bright-line test has recently been extended to five years for properties bought on or after 29th March 2018.

Therefore, any residential properties acquired after 29th March 2018 if sold within five years, will be caught under this rule, and profits will be taxable.

The bright-line rules are complex and unforgiving, and there are instances where they don’t apply.

We highly recommend that you consult us as specialist accountants for property investors so that we can advise you on bright-line tax planning prior to buying or selling any residential investments.

Ring Fencing of Rental Losses

This new legislation was introduced into Parliament on 5th December 2018 as part of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill. Once passed in Parliament, it has been applied retrospectively from 1st April 2019.

From that date, a rental loss generated from renting residential properties cannot be applied against other types of income. The rental loss will carry forward to the next year and can only be applied against future rental profit or taxable gains on the sale of the residential rental property.

The ring fencing will be applied on a portfolio basis, which means a loss from one property can be offset against a profit from another property. Taxpayers can elect to apply the rules on a property-by-property basis if they do not want to apply them on a portfolio basis.

For the purposes of ring fencing, the definition of residential land does not include a person’s main home, a property that is subject to the mixed use asset rules (for example a bach that is sometimes used privately and sometimes rented out), or land that is held/used in a land-related business (for example a sub-division or land development business).

For further information regarding Ring-fencing of Rental Losses please contact ABA as your specialist property accountants.

GST on Property Purchases and Sales

If you are considering becoming a property trader or developer, then you will need to register for GST and consider the implications of GST when you enter into a Sale and Purchase Agreement.

Likewise, if you are registered for GST and are selling a property you will need to account for GST on the sale.

Errors in accounting for GST on property transactions are very common and can be very costly.

Such errors include incorrectly recognising GST on zero-rated transactions which occurs when both the vendor and purchaser are registered for GST and the purchaser is not aware of this.

Another common error is not claiming GST on property acquired from non GST-registered persons.

Seek advice from our property accountants to ensure you have the details correct.