Puzzle Finance Blog


Choose the form of ownership which is right for you


Choose the form of ownership that is right for you


When you're buying residential property, you're focused on what to buy, where to buy it and how much you'll spend.

In the effort to get the "what", "where" and "how much" right, it's easy to overlook the "who" - the name to appear on the title as the property's legally recognised owner.

There are four forms of ownership: personal name, company, trust and self-managed super fund (SMSF). Each one has implications for your property's security and tax-effectiveness.

It's important to determine the appropriate one before you buy, because if you change it afterwards, you could be up for thousands in additional stamp duty and/or capital gains tax (CGT).

Each form of ownership suits different personal circumstances and has a range of pros and cons.

Personal name
You as an individual, or with other individuals, appear on the title to the property. This form is suitable for the majority of residential property owners. This includes people who are buying a home to live in, because it enables them to claim a full CGT exemption.

It also includes people on high-salaried incomes who are buying an investment property and want to use negative gearing benefits to reduce their tax bill.

On the flipside, owning a residential investment property in your own name means that when it becomes positively geared, or is sold, you must pay tax in your name at your marginal rate.

Company
A company is a separate legal entity. It can own assets, must pay tax on them and lodge tax returns.

But company ownership is not appropriate for owner-occupiers because companies aren't eligible for a full CGT exemption. Nor is it suitable for residential property investors because companies can't get the 50 per cent CGT discount applicable to property held for more than 12 months.

Trust
Unlike an individual or company, a trust is not a separate legal entity. It's a vehicle to hold assets on behalf of nominated beneficiaries. Trusts enable you to minimise the tax liability from rental income and capital gains by distributing them among the beneficiaries.

They also offer a good level of asset protection. On the downside, trusts can only distribute profits, not losses. This makes them unsuitable for residential property investors who rely on negative gearing benefits to hold their assets.

Self-managed super fund
Most Australians have their super in a fund managed by a third party. However, a growing number run their own funds. The main reason to buy residential property in an SMSF is because of the concessional tax rate: 15 per cent on money held in the fund and zero when they are withdrawn on retirement.

SMSFs aren't appropriate for owner-occupied property or holiday homes because assets in the fund cannot be for personal use.

The form of ownership has a significant impact on the security and tax-effectiveness of your residential property portfolio and this can change with your circumstances, so it's vital to seek advice from your tax adviser or solicitor.

Posted by Mark Armstrong - Domain - The on 6th December, 2010 | Comments | Trackbacks
Tags:

Bookmark and Share

The trackback URL for this page is http://www.puzzlefinance.com.au/trackback?post=23000105


Trackbacks

There are no trackbacks for this post


Comments

There are no comments for this post


Post a Comment

HTML is not allowed in comments, http://... will be automatically linked.


Name (required):


Email Address (not displayed):


Comment (required):


To help prevent spam, please enter the word goat here:

Puzzle Finance Blog

About Puzzle Finance


Archives

September 2017
August 2017
July 2017
June 2017
May 2017
March 2017
February 2017
January 2017
December 2016
November 2016
October 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010

Tags

Purchase or Rent (1)
The Age (1)

Recent Puzzle Finance Blog Posts

8 Sep 17: Why property investors aren’t necessarily as rich as you think they are Investors have surged in the Sydney and Melbourne property markets at  record levels  over the past few years, with many amassing significant prope... [More...]
5 Sep 17: ‘Risks magnified’ when investors use equity loans to buy multiple properties A common strategy used by property investors around Australia to amass large portfolios of real estate is potentially very risky, experts warn. More th... [More...]
30 Aug 17: Investors can own multiple properties but still be eligible for first-home buyer benefits A little-known loophole across all states and territories is allowing investors, who already own multiple properties, to take advantage of governmen... [More...]
29 Aug 17: A homeowner's guide to letting on Airbnb More and more homeowners are looking for ways to increase their household income. This includes looking to their family home to provide extra funds through Ai... [More...]
27 Aug 17: Organise finance early this spring property season  With more properties soon to hit the market, lenders will be stretched and house hunters should organise finance well ahead of time, prop... [More...]
26 Aug 17: The obvious mistakes first home buyers make JUST say you won the Lotto or a kindly relative left you a sizeable inheritance and, hooray, you have a deposit for a bedsit in a far-flung corner of Sydney.... [More...]