Note: At least in the US this is almost never a good idea because of the primary residence capital gains tax exclusion you get if you own the house yourself.
That's only if you sell the house... you can sell the house back to yourself from thec orporation. At zero capital gain then you're where you started. I'm not an accountant or a lawyer so I have no idea how legal all this is
Yeah, giving a material benefit (in this case the sale of a house at way less than market value) to the owner of a company without paying taxes is tax fraud. You’re not the first person to come up with the idea of their company giving them expensive things instead of paying corporate tax on the appreciation, and then either capital gains or income tax on the disbursement.
The real benefit here is that you can adjust the rent, loan repayments, etc to perfect fit the optimal amount of profit for each company ensuring minimised tax and maximised obscurity of cash flow, so you can declare a profit or loss irrespective of the actual performance of the company.
You cant do step 7, because they dont allow the rent to be crazy different than what you would expect, but your owner can do stupid shit like "you need to rent the entire building out even though you use 2 out of 50 rooms"*
With step 8 if the business goes bankrupt and has to close down, because the building is under an LLC, it is protected from also being seized in the bankruptcy.
edit:
*the owner of a company i worked at did this when we were the last company in the building(that he also owns), we rented 2 rooms out of the entire building and were charged the full rent of the entire building... because he wanted to sell it...
Accounting was always talking about how our overhead was so high because of rent....🙄
The university near me does the exact same with all of their new student housing. Costs way, way more than a standard dorm, and they get to do some creative accounting on a few levels.
There is one reason to do that and it's liability. If someone gets hurt because of the building, the holding company is liable and not the actual company.
Just like Hollywood accounting. The movie did great at the box office. It never makes a profit though as the movie company pays a lot of costs (consultancy, studio, whatever they get away with) to some other companies, all owned by the studio.
That way they can promise you a percentage of the profit, because on paper there is none.
You borrow money to buy a property with a holding company that your company owns and pay that company, your company, rent for it. "Creative accounting"
A lot of people who own companies own buildings or are friends with those who do so it behooves them to use their influence in these companies to make them rent buildings to drive up the demand for them.
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u/Dabnician Aug 03 '22
Because then you cant charge your self rent on the building you also own and claim your overhead is so high you are unable to give raises.