Structuring Your Property Affairs
Structuring Your Property Affairs
Whether you are purchasing a single property or are working towards building up a portfolio, you should be asking yourself what purchase method is most beneficial to you.
Do you buy it in your own name? Together with your spouse or in a family trust? Perhaps with a business partner? Or will it be registered to a business name?
In considering which structure to choose, many factors are at play, and different people have different priorities, including:
- Financing opportunities;
- Tax benefits;
- Asset protection;
- Wealth building; and
- Set up and ongoing maintenance of ownership structure
Some basic ownership structures are outlined below.
Individual name
The first option most people look at – and assume – when buying property is to buy it in their own name. This can apply to property with a single owner or property owned with others.
There are benefits to this in relation to:
- Preparation of contracts for sale or purchase of land
- Contract review
- Commercial & Retail Leases
- Auction enquiries
- Assistance with identifying suitable opportunities for finance
- Help for first homeowners & the First Home Owners Grant
- Mortgages, refinancing & property deposit bonds
On the flip side, from an asset protection perspective, owning property in your own name provides limited security.
In addition, if the owner sells or positively gears the property, the tax paid on that income will be affected by the owner’s individual tax return.
Company name
Some of the benefits of purchasing property in the name of a company include:
- If positively geared, income tax payable may be capped at 30%; and
- A company may be eligible for its own land tax threshold
This might be an attractive option for companies seeking to purchase corporate premises.
However, the main detriments that people must consider when purchasing under a company name include:
- Companies are not eligible for the 50% CGT discount which may apply to individuals;
- There may be limitations on the banking products and benefits available to companies, and the financing process may be more arduous; and
- If the company is sued, there are asset protection risks involved as the property may be exposed to creditors
Trust
Some of the benefits of purchasing property through a trust include:
- Increased asset protection;
- Trusts may often claim the 50% CGT discount; and
- Working hand-in-hand with your estate planning considerations
Disadvantages can include:
- Set up and ongoing costs;
- Negative gearing benefits may be difficult to access; and
- Trust structures can be complex, and different rules apply depending on whether the trust is a unit trust, discretionary trust, hybrid trust, or other form of trust – often requiring ongoing consultation with professional services
Self-managed super fund (SMSF)
Purchasing property through a self-managed super fund is a further option, particularly for those who have already accumulated a significant amount of super.
People may consider purchasing an investment property through their SMSF (owner-occupier not being permitted), although it is usually a more complicated process than purchasing in your own name.
There are however tax benefits to purchasing residential property through SMSF, which may be significant if the funds are not recovered until after retirement.
Each person’s situation is different. If you are unsure as to what structure to use in purchasing property and wish to obtain legal advice which is tailored to your individual circumstances, please do not hesitate to contact our office.
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