- In the heat of the moment, due consideration may not be given to the name under which the property is to be placed
- Considerations include tax implications, security, capital gains tax, risk and investor profile
- If the property has positive cash flow, you should consider owning the property under a Pty Ltd company due to the 30% corporate tax rate.
When buying an investment property, it is essential to ensure that you are buying the property with the most appropriate identity.
Often, in the heat of the moment, no consideration was given in whose name the newly acquired investment should be purchased.
Considerations such as tax implications, security, capital gains tax, risk and investor profile are just some of the things to consider.
For example, in a typical husband and wife scenario, it may be more appropriate to have ownership in one person’s name (i.e. the highest income) to maximize annual tax benefits.
If you are involved in a business or profession that could be susceptible to litigation, it may be more appropriate to place the property in a trust to protect your assets in the event of a lawsuit.
If other family members are involved, it may be beneficial to also use a discretionary trust to ensure it can be distributed to family members. Indeed, discretionary trusts are by far the most commonly used for real estate investing.
If the property has positive cash flow, it might be beneficial to own the property in a limited liability company structure to secure the maximum tax rate of 30 cents on the dollar. Likewise, if the property is negatively oriented, you will not be able to claim your personal effort income if purchased through a PTY company.
Alternatively, depending on the age of the investor, it could be beneficial to create your own super fund to take advantage of the lower tax rates of 10% and 15% for capital gains or income tax.
With superannuation laws, this is becoming a very popular method of owning property. Proving popular is the fact that superfunds can under certain circumstances borrow loans without resources and that when you retire or enter the retirement phase you actually pay no tax.
Joint ownership can be more beneficial in future years when the property is sold, and capital gains tax can be cut in half. This is the most common method of purchasing primary residences.
As can be seen, there are many reasons why special attention should be paid to the correct identity.
I suggest that a consultation with your accountant should be considered before any negotiation. A little planning can save tens or thousands of dollars in taxes for years to come.
Like everything, strength rests on a solid foundation by seeking the right advice early on, you could save $10,000 or even $100,000 over the life of the investment, check it out!