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[MoreMore Insights] Strategy for Property Ownership

When purchasing a property, there are multiple ownership structure strategies you can choose to suit your personal financial circumstances and needs. So what are some common property ownership structures and what are their benefits and drawbacks?



1. Under Individual’s Name


This is the most common property ownership structure, where the buyer puts the entire property under their own individual name. This often include spousal joint ownership


Benefits:

Full access to negative gearing tax benefits when used as investment property;

Simpler structure means cost effectiveness and easy to apply for loans;

Capital Gain Tax (CGT) discount after 12 months property ownership .


Drawbacks:

No asset protection, particularly if you own a business where claim to asset threatens your property;

Positive gearing income for investment properties will be taxed along with personal income.


2. Under a Company’s Name


Company ownership structure places the asset under the name of the company, so that the asset belongs to the company but is managed by the company owner. Company directors will be the guarantor for the mortgage.

Benefits:

Increased asset protection;

Income generated through investment property is taxed along company income, which is capped at 30%;

Company directors can be selectively chosen, where the property can be owned outside of potential litigants, such as the spouse.


Drawbacks:


No CGT discount for companies;

Lending restrictions as some banks restrict their lending to company borrowers;

Company is relatively highly regulated.


3. Under a Trust’s Name


The two main property holding trusts are discretionary trust and unit trust, with discretionary distribution of income to beneficials and fixed distribution of income to each unit respectively. The property is owned under the trust’s name while the trustee will be the guarantor of the mortgage.


Benefits:


Increased asset protection to shield from creditors;

Avoid stamp duty when transferring unit ownership within the unit trust;

Still able to access negative gearing benefits when appropriate trust structure is utilised;

Trusts are generally entitled to the CGT general discount after 12 month holding period;

Relatively less regulated compared to company and easier transfer of ownership and income.


Drawbacks:


Ownership transfer from individuals into trusts is liable for stamp duty and capital gains tax;

Setup and on-going costs for the trust.


Some other forms of ownership structure can include joint ventures and partnerships. Each ownership structure has its own advantages and disadvantages. When choosing property ownership structures, you must consider which strategy is most appropriate to your financial circumstances and needs.

Talk to your tax accountant or your mortgage broker to strategize the best property ownership structure for yourself. Their professional experience will assist you in getting the best outcome in your next property purchase.

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