Ending an LTC
Question from Shuer updated on 10th January 2019:
I set up an LTC in 2010 and I bought a rental property under this company. My partner and I are the shareholders. Now I wish to cease the LTC and convert the ownership back to our names. The property's market value has increased by $150,000. The property still has a $300,000 mortgage. I wish to know if I am allowed to cease the company? And what about any taxation matters involved in the change of ownership?
Our expert Matthew Gilligan responded:
In short, yes you can sell the rental property out of the LTC and into your personal hands. Once you have done so you can then wind up the LTC. The sale of the property out of the LTC and into your hands is treated the same as if it were a sale to a third party. Accordingly, there may be depreciation recovery.
You would also want to get advice to check that the company is not going to be taxable on the gain of $150,000 that it will realise. You also need to take into account the fact that upon acquiring the property in your personal hands, you will trigger a new acquisition date as far as the bright-line rule is concerned, which means if you then sell the property within five years you will personally face a tax liability for any gain over and above the market value at which you acquire the property.
For this reason, I would be very cautious about moving the property out of the LTC and into your personal hands.
Matthew heads GRA's specialist property and asset planning division. He helps clients create optimal tax structures and build wealth through property. He has an extensive buy-to-hold property portfolio, is currently involved in over a dozen developments, and is author of two books - Property 101 and Tax Structures 101.Search the Ask an Expert archive
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