Asset structuring is a vital component of property investment however, it is often bypassed by newbie property investors or developers. Asset structuring should be tailored to the individual investor however, there are some crucial factors to consider when deciding on the best structure for your needs. Here are some of the key issues that you should think about when structuring your assets as a property investor:
- Asset protection
- Taxes
- Multiple parties
- Exit plan
- Dynamics of property investment
- Price
Individual
Definitely the easiest and most cost-effect option when purchasing an investment property. Usually this option provides less asset protection but negative gearing privileges can be utilised to offset income if necessary. One other major perk of purchasing an investment property as an individual is you get to take advantage of the 50% capital gains discount. Bare in mind though that you need to have owned the property for a minimum of 12 months to take advantage of this.
Company
This option is not the most common option but it is possible to own investment properties as a company, although more complex than buying a property as an individual, companies can provide asset protection and tax benefits. The most important disadvantage to be aware of is the inability to access the capital gains discount.
Trust
Purchasing an investment property as a trust is complex, it is costly but it can be beneficial if done right. These are some of the factors you should consider when purchasing an investment property as a trust:
- You do not own anything but you do have some control
- Asset protection – This is a crucial point to consider, assets are protected from third parties
- Income – You can share income with your family and pay a lower tax rate
- Negative gearing – you do not get this benefit straight away as a trust. Although this is a disadvantage you can offset them against future profits.
- Costs – The admin/accounting side of things is complex. Annual accounting fees are also high.
- Borrowing – Get in touch with a professional mortgage broker to help you with this as it is complicated
- Partnership – When you buy a property with one other person for example your spouse, there are two options to choose from:
- Joint tenants
- Tenants in common
When you purchase a property as joint tenants, when one person dies the property will automatically be passed on to the other partner.
However, with tenants in common, the property does not automatically get passed on to the surviving tenant in common.
Purchasing a property using a partnership structure will provide you with the same tax benefits that an individual would get. You can also take advantage of the capital gains discount however, you would get minimal asset protection from this particular structure.
Professional Advice
Before you commit to purchasing an investment property, seek professional advice to find out which structure is best for you. Structuring your purchase effectively will ensure that you maximise asset protection and optimise tax planning.
