Setting Up a Company

James Murphy Tax

For example (his wife and brother-in-law ) are planning of purchasing the late sisters’ property as an investment property. They intend to keep their sisters legacy at the same time as an investment for him and his wife for future generations. They will be using their own personal funds (husband and wife) for the purchase. The sale proceeds can be included in the liquid assets for distribution among the beneficiaries by the executor.

Husband and the sister of the deceased Maria are thinking of setting up a company and purchase the property through this Company name. It would be much appreciated to hear your view and insight.

Concerning this new company,

  1. It is a “Shelf” company from an organisation that specialises in this practice providing us with necessary documents. Much better than setting it up myself through ASIC for registration.
  2. Other than limited liability and maximum tax on future income of 30%, if an asset is purchased under a company,  what other benefits are there from a taxation perspective?
  3. From a tax perspective, what are the pros and cons of purchasing the property as an investment under a company name versus buying it under husband and wife’s name?

Answer

A shelf company is the best option for set-up purposes should you decide to go this way. If you have an Accountant, they can arrange this for you.

As this proposed company will earn passive income, you are correct in stating the company tax rate is 30%.

The downside is that companies do not get the 50% capital gains tax discount for assets held longer than 12 months.

A possibility for the couple is to use the company as a trustee and set up a discretionary trust.

As income flows through a trust with tax to be paid by the beneficiaries, it retains its character.

This means the 50% capital gains tax discount can be accessed.

The trustees also decide who in the family group is allocated the income, and there are potential tax minimisation opportunities  

The investment vehicle selected must fit current requirements while considering asset protection and estate planning issues.

For instance, holding the property in a discretionary trust means it will not form part of the couple’s individual deceased estates.

This may determine whether they wish to hold the property in their own names.