It is an area that is generally poorly understood and professional advice never sought, however, there are a number of benefits to picking the right structure outside the common sole proprietorship/partnership model (e.g owning it in your own name).
The following outlines three main types of ownership in Australia bearing in mind that each provides a different mix of limited liability, compliance costs and tax efficiency. Your own circumstances will be unique so the following is intended as a guide only. We recommend you seek appropriate professional advice before settling on any particular ownership structure for your rental property.
This is the most common form of property ownership in Australia, Your property is owned personally with no limitation on personal liability, an advantage of a sole proprietorship is that there are minimal compliance costs associates with this structure.
There are many types of trusts available, one of the most frequent is a ‘Family Trust’. There are two main advantages to having a rental property owned by a trust.
Asset Protection – the most obvious advantage as the beneficiaries of the trust don’t actually own the assets held in trust, the Trustees do so on behalf of the beneficiaries
Distributions – depending on the type of trust income generated could be split between the beneficiaries offering potential tax savings
Compliance and setup costs can be high for trusts so we recommend determining whether the benefits outweigh the costs,
We would highly recommend seeking professional advice from your lawyer and accountant on the finer points of trust law, asset protection and income distributions.
Property ownership under this structure provides the benefits of limited liability because it’s owned by a separate and distinct legal entity, however, may be limitations on tax efficiencies if used to house an investment property.
A tax benefit that companies enjoy is the automatic deductibility of interest, regardless of the intention of a loan.
Companies attract higher compliance costs and could potentially have complications with capital gains or income drawing. We recommend seeking the professional advice of a Chartered Accountant about whether a company structure is right for you.
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