Q: Is it worth looking into setting up a company and potentially selling two investment properties ($901,000 total debt) valued at $1.1 million to the company and then put money to pay owner-occupier debt from the sale, to take advantage of interest deductibility. The first investment property was bought in January 2021 and the second in May this year (potentially no increase in value and no sales tax). Owner-occupied property debt $377,000, valued at $880,000-$900,000. We are in the process of refinancing, so are there any advantages in doing this? 

A: That is an excellent question and in my view the answer is likely “yes” but is subject to some caveats.  First, before any change in ownership occurs in relation to property you need to work carefully through the tax consequences, good and bad.  You are evidently aware of this given your references to the purchase dates of your property, indicating you are thinking of the bright-line rule.  

However, you should be aware the bright-line rule is not the only tax rule that can apply to land transfers. You also need to think about the bigger picture.  Carrying out a restructure simply to achieve a better tax outcome exposes you to potential allegations of tax avoidance.  On the other hand, a properly executed restructure is centred around improving asset protection and estate planning, which also results in improved efficiency from a tax point of view and is less likely to be vulnerable to such risk. As always, the specifics matter and there is no one-size-fits-all answer. While I think you are headed on the right track, I strongly encourage you to get specialist advice before proceeding.

Matthew Gilligan

gra.co.nz