There are 5 major ownership structures in which you can hold investment properties, and each one has its pro’s and con’s. My fourth article delves into a slightly more complex ownership structure of a Trust – an excellent structure for tax and capital protection.
There are a number of different types of trusts and each have their own benefits depending on the circumstances. The majority of property investors who are considering a trust structure would be looking at a family (also called discretionary) trust. This trust gives flexibility in the distribution of income, and strong capital protection. Should the property be negatively geared, the losses are quarantined within the trust, however, for the small business owner this is not a negative as they can distribute business profits into the investment trust. The investments are also separated and protected from the business.
Unit trusts are generally not ideal for property investors as the units hold the value of the underlying asset(s) and so capital protection is minimal. All the income of a unit trust must be distributed to the unitholder(s) so there is no flexibility.
Another type of trust is a Hybrid Trust. Back in the early 2000’s these were a common structure for property investors as they were marketed as having the best of both worlds. The ATO came out in around 2009 and made some changes that meant these trusts no longer carried the same advantages.
Short and long term plans, lifestyle, tax advantages and capital protection all need to be taken into consideration when determining the best structure to own your investment property in. As always, remember to speak to us on 03 8393 1000 before you purchase to ensure your ownership structure is suited to your individual needs.
Rebecca Mackie, Partner, Paris Financial
5 Investment Property Ownership Structures Article Series