- In the heat of transaction, due consideration may not be given in terms of which the name the property should be placed under
- Considerations include tax implications, security, capital gains tax, risk and profile of the investor
- If property is cash flow positive, you should consider owning the property under a Pty Ltd company due to the 30% company tax rate
When purchasing an investment property, it is critical to ensure you purchase the property with the most appropriate identity.
Often in the heat of the transaction due consideration has not been given to whose name the newly acquired investment should be purchased in.
Considerations such as tax implications, security, capital gains tax, risk and profile of the investor are just some of the points that should all be considered.
For example, in a typical husband and wife scenario, it may be more appropriate to have the property in just one person’s name (i.e the highest income earner) to maximise the yearly tax benefits.
If you are involved in a line of business or occupation which could be liable to attract lawsuits, then it may be more appropriate to place the property into a trust to protect your assets in event of being sued.
If further family members are involved, then it may be beneficial to also use a discretionary trust to ensure can be distributed through to the family members. Indeed, discretionary trusts are by far the most commonly used for property investment.
If the property is cash flow positive, it could be of benefit to own the property in a proprietary limited company structure to ensure the maximum tax rate of 30 cents in the dollar. Likewise, if the property is negatively geared you won’t be able to claim your personal exertion income if purchased via a PTY company.
Alternatively, depending on the age of the investor, there could be merit in constructing your own super fund to take advantage of the lower 10% and 15% tax rates for capital gains or income tax.
With superannuation laws, this is becoming a very popular method of owning a property. The fact that superfunds can in some circumstances borrow non-resource loans and when you retire or convert to the pension phase you actually pay zero tax, is proving popular.
Owning in joint names may be of a greater benefit in years to come when the property is sold, and the capital gains tax can be halved. This is the most common method of purchasing principal places of residence.
As can be seen, there are many reasons why due consideration should be given to the correct identity.
I suggest a consultation with your accountant should be a consideration prior to any negotiation a little forward planning can save tens or thousands of dollars in tax in years to come.
Like anything, the strength is based upon a solid foundation by seeking out the correct advice in the beginning, you could save $10,000 or even $100,000’s over the life of the investment, check it out!
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