Can I sell my LAQC owned house back to myself?

Question from kevin updated on 4th February 2008:

Hi can you please advise me on my situation any advice would be appreciated. I have a rental property in LAQC a couple of years now l am thinking of moving back, in a year or so as l prefer the area to where l am living now, what would be my tax obligations in getting rid of the LAQC and sell back to me in my name. the property still has a mortgage in the company name.

Our expert responded:

This sort of transaction, where a house is sold bewteen your LAQC and yourself, is called an associated party transaction, and that means that it must be conducted as if it was taking place between two entirely separate and unrelated third parties. In order to establish a selling price from the LAQC to you, you will need to get a valuation done by an independent third party. In selling the property to yourself, you are going to trigger depreciation recovered assuming that the price the valuer comes up with is greater than what the LAQC originally paid for the property. This will generate a taxable income which will have to have tax paid on it by the LAQC which if it doesn't have the funds to pay the tax, you will need to pay the tax on behalf of the LAQC. You will obviously also need to get your solicitor to convey the house from the LAQC's name into your personal name (or a trust if you decide to go that way), as well as transferring the mortgage from the LAQC. Your accountant should be able to give you an approximation of what the tax bill will be from the 2007 financial accounts, allowing you to plan for the tax liabiity in advance.


Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.



 



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