My husband and I are non-residents and have 4 IPs in Queensland. We are now looking at purchasing more properties and setting up either a company or trust to purchase them. I have received opposing views from a number of accountant and tax people and now a little confused as to the best road to travel.
Would anyone be able to provide some advice on the benefits and disadvantages of both a trust and company in relation to purchasing IPs or be able to refer me to some information regarding these 2 structures?
Thank you.
I will explain the different structures in general terms.
Company
A company is a seperate legal entity that has it’s own existance and own common and tax laws. Provided the annual reporting and tax obligations are met, it can live forever. It has many rights and obligations that an individual has but there are also many laws unique to companies, especially in tax law. It can borrow money, own assets etc.
The people who own the company are shareholders and the people running the company are the directors. With this type of structure the assets of the company could be attacked by litigants, as the can directors of the company.In some cases directors can hide behind the “corporate veil” which basiclly means that the directors are protected by the company structure and can not be sued.
If this is the case, only the companies assets can be seized. However special powers are given to some authorities to go behind the company and sue the directors. Also if the actions of the directors are criminal, then directors can be sued.Trusts
A trust is a seperate entity that also has its own common and tax laws. Because it is an entity of its own, the people who benifit from any distributions made by the trust can not be held liable for the actions of the trust. The trust owns the asset, and because there is no shareholders, unlike the company, there is no owner of the trust, making it more difficult of anyone th be sued for their ownership of the trust.
A trust also has signifant advantagges when it come to tax.If a trust is directly controled by a person as trustee, even though that person does not own any part of the trust, if any lawsuits are taken out on the trust, the trustee could be held liable for the actions of the trust.
To put further steps between you and the trust, a $2 company is appointed the trustee of the trust.
The big picture would be, You own nothing, but control everything.
I hope this helps
CATA
Asset Protection Specialist
[email protected]Companies are generally not recomended for ownership of appreciating assets. This is mainly due tothe fact they do not receive the 50% CGT deduction for assets held more than 12months.
Being non residents, there maybe many issues with controlling trusts and companies and taxation of these, so you would need to seek good advice.
Terryw
Discover Home Loans
Parramatta
[email protected]
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