company,trusts or private buying?

Hi Max! It certainly does depend on your particular circumstances but I can think of 4 main issues that may sway your decision:

1) FHOG – can only be obtained if owned personally/joint (Trusts and Companies ineligible) – personally I don’t think this should be a primary consideration and is generally given much more significance than it deserves

2) Income tax payable on profits/losses of investment property
a. if positively geared
* owning personally/jointly – inflexible but can have lower income spouse owning majority as joint tenants to minimise tax
* owning in a Trust allows you to direct profits most tax effectively year by year (eg to a spouse not earning as much income)
* owning in a Company – don’t know a lot about this – but may be advantageous in terms of paying company tax
b. if negatively geared
* owning personally/jointly – inflexible but can have higher income spouse owning majority as joint tenants to take full advantage of tax benefits of negative gearing – but beware if owning for long term that in time the property will almost certainly become positively geared and then that same person has to pay tax on the profits at the highest marginal rate
* owning in a Trust – can’t distribute losses to take advantage of negative gearing benefits (must hold to offset against future earnings) but may be worthwhile if the Trust has other positively geared assets
* owning in a company – no benefits that I’m aware of

3) Capital Gains Tax concession
* owning personally/jointly – receive it
* owning in a Trust – beneficiaries to whom the capital gain is distributed receive the concession if they’re eligible (ie if beneficiary is an individual they receive it, but a company who’s a beneficiary loses it)
* owning in a company – lose it – main reason why this is rarely done

4) Asset protection
* owning personally/jointly – the property is vulnerable to liabilities resulting from the actions of the individuals owning the property
* owning via Trust or company – precluding fraud and some other circumstances, the property is generally only vulnerable to liabilities resulting from other activities of the Trust or company, so if, for example, the Trust owns a property but doesn’t engage in any legally risky activities such as running a business, then the property would usually be pretty safe from litigation

In the above, I’m assuming the Trust has only individuals as beneficiaries. But this picture is much more complicated by the fact that you can have hybrid trusts (where assets are owned in a different proportion than that in which income is distributed) and that companies can be beneficiaries of trusts and trusts can be shareholders in companies etc. There are virtually an infinite variety of ways to structure and you really need somebody who knows this area very well. (I’m happy to make a recommendation if you contact me personally.)

I am NOT an accountant or lawyer, only an amateur who’s tried to take good notes in seminars [specs] Generally, my “big picture” understanding is that if you’re a personal investor/developer (ie without employees), it’s usually best to hold your property in some kind of Trust for taxation benefits, and use insurances, debt, wills and other measures to protect the assets.

Again – I’m an amateur and this is NOT advice, just me sharing my understanding of the broad issues [whistle]

Tracey Bryan
Brisbane

I use the following

Corporate trustee being a Pty Ltd company that you are the director of.

Family or Discretionary Trust

Beneficiaries would be you , your kids and another company that you are also director of.