Re-ordering portfolio
Question from Kurt updated on 25th September 2020:
I have a number of properties and businesses which I've sporadically acquired over the years and I want to get them more ordered. I currently have our family home with a minor dwelling in our own names. Another two rental properties (already past the bright line test) are in our own names. A third rental is in a limited liability company (and I will elect to change it into an LTC once current losses are used up).
Our strategy is to buy and hold positively geared multi-unit rentals. We're not looking at trading or selling. I assume it's best to transfer the two rentals in our name to the LTC? I also own three separate limited companies. How can I protect my own family home and rental properties from any business risk/liabilities?
Our expert Matthew Gilligan responded:
There are multiple issues here so, due to space limitation, I am going to make some general comments. You are conscious of risk that you carry personally (eg: as director of business companies). This means the objective from an asset protection perspective is to move capital out of your hands personally.
I see a two-trust structure as appropriate. A “family” trust is used to own the home. A “business” trust is employed to own the shares in business companies. Doing so protects the shares from your personal risk. (Imagine that one of your businesses fails and you were sued as a director - you would not want the shares in other companies to be vulnerable to this.)
It is likely worth transferring the rentals held personally to the rental company, but there are tax consequences to consider such as a reset of the bright-line clock. There are other intricacies here, including tax consequences of moving shares (you can forfeit tax losses and/or tax credits), possible split ownership of the home given it is part rental, protecting shareholder loans and getting the optimal finance structure in place to name just a few.
I suggest you get expert asset planning advice to cover this array of issues sooner than later.
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
Browse all questions in the Ask An Expert Archive »