Property tax accountant CGT

What name should I buy the investment property in?

This is a common question from our clients. Unfortunately, there is no simple answer. There are numerous issues that you need to consider, such as:

 How are you going to fund it? Is it a positive or negatively geared property?

 What are your intentions for the property – hold or sell?

 Who are the parties involved?  Where and what property are you intending to buy?

 Is asset protection important?

As you can appreciate, the above questions can lead to different outcomes. It is important that you crunch the numbers before choosing the investment structure. You need to consider if it is better holding the property in the name of a low-income earner or high income earning spouse. If it is going to be running at a loss for a short time or become positively geared or capital gains tax on its sale, then it should be held in a low-income spouse’s name or a discretionary trust. Discretionary trusts have tremendous flexibility, i.e. each year you can determine who receives distributions and has asset protection mechanisms. However, trust losses cannot be distributed and you cannot claim borrowing costs to invest in a discretionary trust. Unit or fixed trusts can give you negative gearing benefits but they do not offer real asset protection or discretion to distribute profits. Hybrid trusts are a combination of a fixed unit trust and a discretionary trust, they are structured to overcome limitations of fixed and discretionary trusts. However, the ATO is currently reviewing hybrid trusts very carefully. Self-managed super funds are fantastic vehicles to hold investment property. There is potential for rental income and capital gains to be tax-free once you retire and reach 60 years. It also offers good asset protection. The downside is that your money is locked away and borrowing against the property is very restrictive. Therefore it is better to consider this once you are above 40 years. Therefore in choosing a structure, you need to consider carefully before you make a decision. Remember the investment property only makes sense if it makes money for you. It should not be a tax-driven decision.

There is more to considering ownership structure than income tax. keep in mind all the legal considerations too such as estate planning, asset protection, land tax, stamp duty, control, ability to mortgage and ability to borrow, also social security act is something to consider.