DIFFERENT STRUCTURES FOR OWNING PROPERTY




What is the best way to buy a property? Is it as a sole purchaser, a company, or a trust,  or in a joint venture? 

Here is a guide to the advantages and disadvantages of these four methods, with particular attention being paid to how each one will affect your tax obligations.  Remember, there is no one size fits all when it comes to buying property, so it would be advisable to speak to an accountant before making an offer. 

INDIVIDUAL

Buying a property yourself, in your own name, is the simplest structure to use. In fact, over 65 percent of buyers in Australia do precisely this. At the outset, securing a loan is relatively straightforward, because you can use payslips and tax returns as proof of income. 

Also, should you intend the property to be your main residence, you will be eligible for capital gains tax exemption if and when you decide to sell. 

Unfortunately, if you were to be personally sued, this method does not give you asset protection. 

COMPANY

This is a good method for developers or full-time investors.  In effect, the property and the mortgage are under the name of the company, which is a separate legal entity, run by the  directors and owned by the shareholders. Income is taxed at 27.5 percent for small companies with a turnover of under $50 million.

This method provides greater asset protection, but unfortunately you don’t have access to the capital gains tax discount. Please note that if you intend to keep a property only for a short time, a company structure may not be worth the time and cost it will take to establish and maintain.

TRUST 

Investors have a liking for this method, the most common being a family trust or a unit trust. The latter is similar to a company structure, and gives you a defined interest in the trust. This means your profit from the property will be the same as your ownership within the trust. Unit trusts are a good option for unrelated parties investing in property.

A family trust is slightly different in that it doesn’t have defined unit holders, and thus provides flexibility and asset protection. 

The complexity of trust structures may impact on how much you can borrow, so be sure to speak to an accountant when applying for finance.

JOINT VENTURE

This is a good option for people who have set an end date for their investment. This includes developers, of course, because in a joint venture the parties share in the proceeds, not just the profit.  For example, each party may own adjacent blocks of land, and the proceeds will be the property that is built on the land.

* This article does not constitute financial or legal advice. Please consult a professional financial and legal adviser before making a decision.


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