Commercial tenants are more fortunate than their residential counterparts in regards to rental security, but occasionally nothing beats possessing the building that you run your company from. Perhaps you are starting a business or need to upsize your current clinic premises to carry out breast surgery and branch into other cosmetic surgeries like double eyelid surgery. Expanding your business requires new property and space. To be able to make an educated choice on whether to buy a property, it’s crucial you think about the tax and money consequences before you take the plunge.
Deciding whether to buy a property
Purchasing commercial real estate may be a fantastic move for your company if it is being created for the correct reasons. Before looking at suitable property for sale ask yourself:
- Why you are Purchasing the property
- Everything you could do with the cash if you did not Buy a property
- What your Long-term strategies for your company are, and also how possessing land supports those plans
- Ensure that you’re pleased with the responses to all those questions prior to taking this thought any further.
Preparing to Purchase a property
Before purchasing anything you are going to want to sit down and prepare a budget to ascertain what you are able to afford. First off, you will want to allow for the deposit, that will be generally 30 percent for industrial property. Look at the amount of savings you have, the size of the loan you estimate and your predicted income for the next few years. This should give you a view of how long it will take you to pay off the property. After that you have to take into consideration:
- Legal fees, review fees, depreciation accounts charges, etc. in relation to the Buy
- Price to renovate upon buying (if needed)
- Mortgage payments (interest, principal, fees, etc.)
- Strata rates (if appropriate)
- Council charges and price of utilities (water, gas, electricity)
- Repairs and replacements
It is a fantastic idea to create an adjustment for your current company budget to permit for the shift in outgoings — simply take the lease you are currently paying and place in the several costs associated with owning the area. Doing so on a month-by-month foundation should make it possible for you to foresee any potential money flow dramas well beforehand. Of course, you will be looking for properties on major real estate sites and newspapers but don’t forget to search through private real estate listings for the perfect property.
Prior to buying a property, you need to talk to your accountant, and maybe your attorney, to go over the most practical constructions to maintain the house. There is a guideline that states that you don’t hold passive assets (for instance, commercial property) at precisely the exact same thing that carries on an active business — that means that you would not purchase the property at exactly the exact same firm that operates your small business. There are a couple of choices you can research here including another business, a trust or maybe a self-managed superannuation fund. In any event, make sure you find the ideal information prior to signing any contracts.
Use an accountant that knows how to develop innovative companies
Making the Purchase
Should you choose to buy a property, it is a fantastic idea to commission a depreciation report (also called a quantity surveyors report). These reports detail the many fixed assets inside the property so it is possible to claim a depreciation deduction every year because the value of these assets declines. These reports are assembled with a professional quantity surveyor and may yield substantial tax deductions.
Additionally, it is important to get a commercial rental agreement in place in the event the property is stored in a separate contract from your enterprise. Why? The company will be paying rent for this asset, to guarantee no hassle with the Tax Office you may need all related-party trades to be undertaken on a commercial basis. This usually means obtaining a property agent to gauge the market lease and then placing this at a leasing agreement and sticking on file, only in the event the tax man comes knocking.
Negative gearing is something which applies to commercial property in precisely the exact same manner it applies to residential property. In case the running costs of this house (e.g. maintenance, rental prices, etc..) exceed the rental income being obtained then the homeowner receives a tax deduction for your reduction being made. Just bear in mind your ability to get this tax deduction will be affected by the arrangement you opt to maintain the property.
This guide is by no means a comprehensive manual but should provide you a beginning point for discovering whether you would like to purchase commercial property. For detailed advice, speak to your accountant.