Monday, November 30th, 2009
Investors who own assets, including property, through a company need to re-examine the tax implications of using those assets for private use. As companies don’t qualify for the 50 per cent capital gains tax (CGT) discount or the main residence exemption, its highly unlikely, even for asset protection purposes, for a person to hold their home in a company these days. But this is more likely to be the case if the property was purchased before CGT was introduced. This article could also apply to a holiday home – infact any asset owned by a company of which you are a shareholder and have private use, even if the asset is pre-September 20, 1985.
In the May 2009 Federal Budget, the government announced it would introduce laws to tax people on the market value of benefits they received by using property owned by a company, unless they paid market rent. The law was applied retrospectively from July 1, 2009, so if this applies to you it looks like your rent is already in arrears.
If you are an employee of the company the benefit you receive would have already been caught under the fringe benefits tax rules. This new law is designed to deem a dividend at the value of benefits paid to shareholders and their associates who may not be employees or where a company only has passive investments.
The main point of the new law was to catch boats and the like, but it is clear from a Treasury media release in September announcing some concessions for motels and farms that it is intended to catch homes.
If you own any asset that you use for private purposes in a company are not currently paying fringe benefits tax on the market value of the benefit you receive then it is important you discuss your options with your accountant. This is not something that should wait until after the end of the financial year, and in the meantime at least keep a diary of your use of the asset.
Disclaimer: this blog does not purport to give accounting or taxation advice. Do not rely on anything we say here. Instead consult with your accountant or tax professional.