Ownership structure: Individual vs trusts

Discussion in 'Accounting & Tax' started by Jacko, 3rd Jun, 2020.

Join Australia's most dynamic and respected property investment community
  1. Jacko

    Jacko Well-Known Member

    Joined:
    21st Nov, 2019
    Posts:
    161
    Location:
    Melbourne
    Hi guys,

    Hope you guys are doing well.

    My wife and I are currently looking for a property with subdivision potential which we plan to later build 3 townhouses on. Ideally the townhouses will be all leased out to provide passive income though one may be sold to reduce the mortgage.

    We are looking for the pros and cons between owning the property in our personal names or under a trust structure. I'm pretty sure this has been covered in the forum somewhere but I cannot locate it. Appreciate it if you could point me to the thread or provide any comments.

    Thanks for your help.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Why not considering a company?
    Have a look at my posts in the legal and tax sections.

    Basically a trust will mean a lot more land tax in NSW, and to a lesser extent in VIC, but can work well in QLD.

    Get some specific legal and tax advice.
     
    kierank likes this.
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Many issues to explore here and many may be explained in our developer toolkit. Just as you would plan any buisness the plans for any developmnet should be based on sound fundamentals and planning and the build and sale itself should be costed and then once if its "go" then seek specific advice concerning structure etc. Terry's comment reg land tax could easily add $22,000 in unnecessary cost if a NSW trust owns the property but the new law changes in NSW (Bill is before the house) concerning stamp duty and surcharges duty and surcharge land tax could further increase this. Vic has some issues too as the threshold for a trust is quite low and the impact is less onerous.

    Blending sale and retention can also trigger some longer term tax concerns which could attach to the retained lots. eg GST in the the medium term and even loss of CGT in the longer term.

    One option to also explore is seeking a DA/permit and then selling the lot with approvals. This can materially alter tax outcomes and risks.

    Having a well documented record of advice may save money.
     

    Attached Files:

    Last edited: 3rd Jun, 2020
  4. Jacko

    Jacko Well-Known Member

    Joined:
    21st Nov, 2019
    Posts:
    161
    Location:
    Melbourne
    Thanks Terry and Paul. Currently we are looking at a property in Canberra. Thanks for pointing out on land tax...will check what the implications are.

    Generally speaking though we are looking to buy a couple of investment properties but the location will depend on the type of opportunities that come up. We have spoken to a couple of accountants who told us to just put the properties under own names until we've used up our landtax thresholds. From what we understand, trusts or companies have a higher running cost and may not yield benefits (e.g. trust - depends whether we have low-income beneficiaries to distribute to) However, we've also noticed others already put the properties under trust straight away. We feel that it's a struggle to get a clear answer.
     
    Paul@PAS likes this.
  5. Mark F

    Mark F Well-Known Member

    Joined:
    29th Jan, 2020
    Posts:
    1,029
    Location:
    Canberra
    I don't know the current situation in the ACT but there certainly used to be quite hefty costs for "Change of Use" of a Crown Lease where the change increased the number of dwellings or the way the land was used, eg residential to commercial. All ACT property is under a Crown Lease of some sort.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Did you seek legal advice? For ownership structuring I would see a lawyer as there is more to it than commonwealth taxes.
     
  7. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    In simple cases where the property is well neg geared and likely to remain so for a while there costs of a trust may favour personal ownership for personal tax reasons BUT many other issues need to be considered. Asset protection ? Future gains ?

    I see loads of people who adopt that view and 10 years later they wish they had listened to advice and put it into a trust !!

    Then there could be reasons to consider a unit trust too. The underlyiing % ownership may be changed without duty or even legals. And address the CGT problem for the future (at least in part). The refinancing principle for unit trusts can be a nice strategy allowing spouses to borrow money and debt recycle
     
  8. Hamish Blair

    Hamish Blair Well-Known Member

    Joined:
    29th Sep, 2015
    Posts:
    489
    Location:
    Melbourne
    For a company depends on how the shares are held. If the shares are held by a discretionary trust, the franked dividends can be streamed.
     
  9. Mike A

    Mike A Well-Known Member

    Joined:
    24th Jun, 2015
    Posts:
    2,656
    Location:
    UNIVERSE
    Also companies can still deduct second hand depreciating assets (trusts, individuals, SMSFs cannot) and, as the company will be carrying-on a business (read TR 2019/1) then it can access the SBE measures.
     
    Elives likes this.
  10. Elives

    Elives Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    979
    Location:
    Queensland
    Hi Paul, are you able to post the tool kit in pdf form? my computer doesn't allow zip files for some strange reason. Cheers, Elives
     
  11. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    No.
     
    scientist likes this.

Build Passive Income WITHOUT Dropping $15K On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia