Are there additional tax benefits for the Property Investor?

We regularly discover many property investors that are not aware of what their full entitlements are in order to maximise their business structure to ensure that it operates in the most tax effective way.

One such opportunity an investor can benefit from is the shareholders/directors current account.  Essensially, since an investor has owned their property, they have lent money to the company in a variety of forms, such as, the initial deposit (if applicable), topping up any shortfall (if required), home office allowance, travel to the property and any other expenses relevant to the rental property business.  The money lent by the investor is effectively owed back to them by their company.  Over time this amount can add up to be a very sizable sum.

This sum can then be repaid to the shareholder through the company borrowing from the bank the necessary funds in order to repay the shareholder's current account.

Depending on the circumstances, the interest on this new loan may be tax deductible in the company.  This will increase the company's taxable loss, which will ultimately result in a larger tax refund in the shareholders'personal tax returns.  It is important to note that the total debt (both personal and business) remains the same as the shareholder is replacing personal debt with a new debt in the company.

The money the company borrows from the bank is then paid to the shareholder which repay existing debt in their personal names that was previously not an expense for tax purposes, such as their home mortgage - eg, removing bad debt!

For more information relating to the suitability of this to your own personal situation we would always recommend that you first speak with your accountant.  or, you could start with Iron Bridge Property who would be able to point you in the right direction.

Article by: