What type of trust for new IP’s?

Hi Peter,

Companies are not recommended to hold investment properties, mainly because they do not receive the 50% CGT discount.

In terms of tax planning and asset protection trusts are a far more flexible option. Generally you should keep your business and investments separate to prevent them being exposed to litigation, so you may wish to consider setting up a separate trust.

The pros/cons of using a discretionary trust are:
1. Flexibility in terms of tax planning and minimisation when distributing profits from the trust.
2. Enhanced asset protection.
3. If the trust makes a loss, it is trapped in the trust and cannot be used to offset income until the trust makes a profit (unlike holding a property individually, for example, where you can offset the loss against your salary etc).

To use a trust you would need the property to be positively geared (or expect it to be within the next few years) otherwise you will have tax losses accumulating within the trust and being wasted.

There is also the option of using a unit trust. However, you lose the flexibility of choosing where to distribute profits as the income of the trust must go to the unitholders, and the units are assets which could be exposed if you are sued. The benefit of a unit trust is it can allow you to negatively gear if you set it up correctly.

In the end it comes down to your personal circumstances and objectives – I would definitely recommend speaking to your accountant before making a decision.