Property Gurus - Land tax and entity ownership

Discussion in 'Accounting & Tax' started by JamesC, 13th May, 2021.

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  1. JamesC

    JamesC Well-Known Member

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    I've received mixed advice on which entities are preferred for purchasing investment properties when building up your portfolio.
    Some say individual for simplicity and negative gearing benefits.
    Others have suggested unit trusts with a corporate trustee for asset protection and potential access to negative gearing if the loans are structured correctly.
    Some have suggested to go with discretionary trusts with a corporate trustee.

    Which method would be most effective from the perspective of minimising or effectively deducting land tax?
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    Don't buy property in states where trusts don't get a threshold & trap ng losses.
     
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  3. Terry_w

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

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    Ive received mixed advice on what medicine to take. Apparently it depends on the symptoms!
     
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  4. Trainee

    Trainee Well-Known Member

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    Who are these people that you are getting advice from? Accountants? Lawyers? Osr employees? Experienced investors? Since you havent mentioned the most important thing (the state) then the advice isnt worth much.
     
  5. MWI

    MWI Well-Known Member

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    It depends. As mentioned below in some states trusts pay land tax with no thresholds, in QLD for example, trusts do have exemptions but have lower land tax threshold.
    You need to analyze on personal financial circumstances and where you plan to invest.
     
  6. Paul@PAS

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

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    There is no specific answer to give. Terrys comments basically sums it up well.
    A unit trust likely provides no greater asset protection v that of personal ownership. The unitholder will own indirect interest in real property where personal ownership is legal title. Bothare assets available to creditors or litigants if successul pleadings occur.

    What are the primary objectives - asset protection, land tax, flexibility for future changes, taxation benefits from neg gearing, future CGT tax, superannuation etc ?

    There are loads fo ownership alternatives.Borrowed funds, neg gearing and other sisues also impacts being able to use these. Legal and tax advice on the options is required. The choices will be very different for some groups of people v others
     
  7. JamesC

    JamesC Well-Known Member

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    Predominantly asset protection, land tax, and taxation benefits from neg gearing
     
  8. Trainee

    Trainee Well-Known Member

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    asset protection separates the person from the asset.

    Negative gearing combines losses from the property with other income earned by the person.

    just because you want it all....
    Why do you need asset protection?
     
  9. JamesC

    JamesC Well-Known Member

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    Why wouldn't you if you're building up a portfolio?
     
  10. Terry_w

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

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    who or what are you trying to protect from?
     
  11. JamesC

    JamesC Well-Known Member

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    Nothing right now. Anyone can be sued or go through a divorce or what not right?
    The future is unpredictable.
     
  12. Terry_w

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

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    Not anyone can be sued. You would need to first do something to cause someone to want to take action against you.
    You have to be married to go through a divorce. non-married can go through family law separations though.

    If you want asset protection you have to plan ahead to what could happen and that will involve working out what you are trying to protect against.
     
  13. JamesC

    JamesC Well-Known Member

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    Even a breakup of a de-facto relationship has implications!
    Your business could go broke and you could go bankrupt.
    If you're in a high risk profession, all it takes is one unhappy customer.

    Asset protection is only one aspect of choosing the appropriate structuring.
     
  14. JamesC

    JamesC Well-Known Member

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    After pondering about this on a sunny Sunday afternoon, I have come to a conclusion that the best strategies for being on top of land tax ("wealth tax") is to have a combination of properties in your name and in multiple trusts, and to deduct the accounting costs of the trusts against your personal income, and to diversify your portfolio across multiple states.
    Probably best to exhaust the thresholds while investing in the individual's name first, before moving onto trusts.
     
  15. Terry_w

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

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    land tax is not the only thing to consider though.
     
  16. JamesC

    JamesC Well-Known Member

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    True, but in this thread, I'm trying to specifically explore entities from a Land Tax angle.
    It definitely seems like a big roadblock to expanding one's portfolio, one which causes people to even sell up if it affects their cashflow.
     
  17. Scott No Mates

    Scott No Mates Well-Known Member

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    Have you consided the types of property that you purchase to minimise land tax exposure eg apartments, regional property, rural, low value properties?
     
  18. Terry_w

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

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    Have you considered how companies are treated?
     
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