Another important reason for discussing a proposed purchase with an accountant is to ensure that the maximum income tax advantage of both the purchase and operation of the business are obtained. For instance, a particular point which is not always considered is the financing of the two contracts. Interest of any borrowings in connection with the purchase of the residential unit would not be tax deductible. Accordingly, where possible, purchasers should ensure that borrowings are made against the business contract. There is also the question of the names which should appear on the respective contracts and advice on capital gains tax.
- For the purpose of a mortgage up to 50% can be borrowed of the total purchase price.
- There must be sufficient, income from the business to repay a loan, and repayments should not exceed 30% of the net income for at least two months ahead.
- It is very important that the manager has enough funds in reserve for outlays such as wages, and other day to day expenses for at least two months ahead