4 Common property ownership structures
More than 65 per cent of buyers in Australia buy their property in their own name. However, depending on your goals with the property investments and how it fits into your broader portfolio, certain ownership structures can be right for you. Below we outline a few different structures of property ownership and when each structure may be appropriate.
As an Individual
For a property the simplest ownership arrangement is owning the asset as an individual. This means that you are buying the assets in your name. Buying it in your name can be advantageous for a property that is your principal residence as you will be eligible for the capital gains tax exemption. It is also straightforward to obtain financing for a property purchased in your name, as you can use payslips and tax returns as proof of income. On the downside, if you are personally sued, buying a home in your name does not really give asset protection.
A structure of a company is a good option for property developers or full-time real estate investors. The company is run as a separate business entity by the appointed directors and owned by shareholders. The property and mortgage under that arrangement will be under the business name. Profit for small companies with turnover under $50 million will be taxed at 27.5 per cent.
Under a business arrangement, you get enhanced wealth security but you don't have access to the tax break on capital gains. If you do not intend to hold your properties for a long time, the time and cost of establishing and maintaining a company structure might not be worth it.
Family or Unit Trusts
Trusts are a popular choice among real estate investors. A family trust or a unit trust are the most common trusts used by real estate investors. Similar to a company structure, you are given a defined interest in the trust by a unit trust, so your profit from the property will be the same as your ownership in the trust. Unit trusts may be a good choice for an investment in property by different parties.
Family trusts are slightly different. It has no unit holders identified, providing flexibility and security of the assets. The complexity of your trust structure can affect how much you can borrow, so when you apply for finance, you need to talk to your accountant about it first.
If you have an expiration date for the investment in the property, a joint venture may be a viable solution. It's a much more conventional way for developments as the members benefit in the proceeds in a joint venture, not only the profit. Each party, for example, can own adjoining blocks of land, and the proceeds will become the property built on the land.
This article is intended for general purposes only. When it comes to land ownership arrangements there is no one size fits all. Make sure you talk to your accountant about tailoring your real estate investments and how different ownership frameworks affect your tax liabilities.
Note this article is not financial or legal advice. Please check with your financial and legal qualified advisors before taking any decisions on your own.
For further information about real estate in this area, contact No Bull Real Estate, your most reliable and friendly real estate agents in Newcastle & Lake Macquarie. Buying, selling, leasing for residential, commercial, industrial property, contact your local expert to buy, sell or lease today on 49552624 or https://www.nobullrealestate.com.au