Which is the best option, Trust or LAQC?

Question from Clinton Stokes updated on 17th December 2008:

My wife & I are about to purchase our first house, our long term goal is to get into rentals. The house is currently rented for $250/wk for the downstairs flat, $400 upstairs flat, but I can add another downstairs flat giving us an additional $200/wk. We would have a mortgage of $440k. I am starting my own plumbing business. The house needs some tidying up (reno cost is incl in mortgage). We have to move out of our current rented house but current rentals in town are $400+ pw. Would a trust or LAQC be the best option, as cashflow will be sporadic?

Our expert responded:

This is the sort of setup that IRD is looking at with LAQC's - people using their own home as a rental and getting a tax deduction for doing so. Yours is a slightly different situation in that you have one, possibly two self contained flats. Having said that, to put this property into an LAQC would be quite an aggressive tax strategy and probably not worth the potential hassle you may get from IRD. Your options then are to put the property into your personal names and make an adjustment for your personal portion of the expenses, or put the property into a trust, if you were concerned about asset protection (which I would be given that you are about to start your own plumbing business). In both cases, you need to make sure that you do not pay any rent for your part of the house and that you do not claim more than the portion of the expenses that relate to the flat/s, otherwise you could be in a bit of hot water...

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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