Ownership Vehicle

Business Ownership Entity

You have 3 choices which are examined below:

Personal (either Partnership or Sole Trader status)

The simplest form of ownership chosen by many first time investors. You personally own the property and provide the direct link between ownership, tenant and lender.

Any Tax losses are directly attributed to the owners/landlords. Partnerships must split the losses accordingly.

Limited Liability Company

A separate entity or “Artificial Person” in law.

This vehicle of ownership can be more effective in the distribution of any Tax Losses. Where there are 2 or more share holders, the proportion of shareholding can be adjusted so that the maximum proportion of losses can be attributed to the largest income earner.

Please note that the company must have LTC (Look Through Company) status to attribute any Tax Losses to the shareholders.

Click here to review information at the IRD about Look Through Companies.

Look Through Companies – IRD

A Company is a commonly used method of retaining your existing home as a new Investment Property. Please contact Finlay for more information.

Where there is more than one shareholder, using a Company can also deal with any subsequent changes in ownership of your Investment Property without the potential ramifications of a change of ownership on the Certificate of Title.

The current company tax rate is 28 % for Taxable Profits generated by the Company as opposed to the top personal tax rate of 33 %.

Please note – Personal Income Tax rates apply to Tax Losses which are distributed to the shareholders.

Using a company can provide a layer of protection between landlord and other parties, i.e. you are not personally responsible, the company is. Therefore in the event of litigation against the company (as Landlord and/or Business Owner), the key asset at risk is usually the equity in the Company.

Please note – there is no additional protection with the lender though as they will generally take your personal guarantee.

For more information about Companies please visit
www.companies.govt.nz

Family Trust

The key issue with a Family Trust is asset protection. The Family Trust is an “Artificial Person” which can acquire assets on behalf of the Trustees and Beneficiaries. This is a popular method of “ring fencing” or protecting assets from financial threat and loss.

However, it is essential to note that Tax Losses cannot be distributed to the Trustees or Beneficiaries and must remain within the Family Trust.

Please note – if the Family Trust has other income, the Tax Losses can be offset against that income to reduce the Taxable Profit of the Family Trust. As described above, a Family Trust can acquire shares in your Investment Property when it becomes appropriate.

General Recommendation – Operate a separate bank account for your business, in the name of that business, no matter which Investment Property ownership entity you choose. This one action will save you time and money in accounting for your business.

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