How common is it for people to buy a commercial property investment using a company name?
This is very common. Whether the property is purchased in a self-managed superannuation fund, a trust or just in the company entity, this allows greater asset protection for the individuals involved.
Why do people purchase property using a company entity?
There are various reasons why people purchase property in a company – two of which include asset protection and taxation. By using a company, an individual is able to place a layer between them as an individual and any creditor. The company tax rate in Australia is 27.5%, which is generally less than the individual earning more than $115,000 per year.
If you want to establish a company with the intention of purchasing a property through that vehicle, where do you start? How long does it take to set up? Why can’t I buy the property (say at an auction) and then work out what entity to place it in? Do you require an ABN?
You can typically establish a company within 24 hours, provided you have all the necessary information readily available and the directors are present to sign the necessary documents.
It is generally unwise to sign a contract for the purchase of a property either at auction or otherwise and then request a change, because the seller may not agree. In addition, changing the contract could result in the payment of double transfer duty. There is a way to have someone purchase as an agent but that requires very specific advice. Generally, it is safer to have the entity established before a contract is signed.
Requiring an ABN depends on the type of property you purchase and if the income from the property reaches the GST threshold of $75,000. If your GST turnover is less than $75,000, registering for GST is optional.
Does GST apply on the purchase?
It depends on the type of property and what your plans are. Residential properties are input-taxed sales and do not include GST. However, if you have purchased the property with plans to develop it and on-sell it, you may be liable for GST as it could be considered that you are carrying on a business. If you purchase a commercial property that is leased, you may satisfy the going concern exemption which means that GST would not be payable. If you purchased a vacant commercial property, it is very likely that GST would be payable. The issue of GST is complex, and it is important to seek professional advice beforehand.
What are two pieces of advice you have for people considering to buy a property in a company?
As with all proposed property purchase decisions, you should do your homework. Study the market thoroughly and obtain structuring advice from your solicitor and accountant. Obtain the advice early in the process, as a company may not be the best structure after all, and there are a number of other considerations to make when buying commercial property.
When shouldn’t you buy a property under a company?
If you are purchasing your principal place of residence (your home), you might not want to purchase that property in a company entity. That would prevent you from being able to claim any capital gain tax exemption on any increase in value realised on a future sale. You may also unnecessarily be required to pay land tax on the home. If you are concerned about buying your home in your personal name, there may be other strategies available.
Who can you speak to for more information on your property buying options?
As a property lawyer with more than two decades of specialised experience in the real estate industry, you can speak to me or Bill Purcell, the other director in Bennett & Philp’s property team. Contact your accountant and introduce the accountant to your solicitor. The earlier you do that will result in direct cost savings.
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