How you decide to own your property can be equally as important as what property you purchase. A wrong decision can end up losing you thousands, if not hundreds of thousands of dollars.
There are 5 ways property can be owned:
1. in a company;
2. by an individual;
3. in a partnership;
4. in a trust; or
5. in superannuation.
When making the decision as to which structure to use, there are two key criteria to take into account:
1. the tax implications; and
2. asset protection
Tax Considerations
The right business structure can reduce your tax in the following ways:
1. Splitting the income– if you were to make $100,000.00 per year, your top marginal tax rate would be 37%. However, if you were able to make the same amount of income but be taxed as though two or more people were making that income your effective tax rate would be much lower. Whether this can be achieved will depend on your personal circumstances.
2. Government Implemented Measures-
· Capital gains discount- the government encourages individuals to sell property by providing a 50% capital gains discount to investors who have held residential property for more than 12 months. This discount will apply to superannuation funds, most trusts and individuals. This discount does not apply to companies.
· Superannuation- The government encourages investment in the superannuation fund by providing a flat 15% tax rate on income and a capital gains discount.
· Company tax rate- small businesses are taxed at a flat 28.5%
Asset Protection
When you buy as an individual, you have unlimited liability, towards your debts. Conversely corporate structures can limit the amount of your personal liability.’ A well-prepared business structure may help protect yours and your loved one’s assets from:
· Bankruptcy;
· Family law claims; and
· Contesting of a Will, by family members.
Conclusion
The right business structure for you can save thousands of dollars in tax and can make sure that the assets that you worked so hard to earn remain entirely yours. Before making your next property or business purchase, contact our office to discuss which option is right for you.
