Structuring Property Investment Opportunities

Personal Name

Buying a property in your personal name is a good option. If you own your main residence in your personal name then you may be eligible for capital gains and land tax concessions that are available.

When considering purchasing an investment property there are a few factors to consider:

Asset protection – It is important to be cautious that if you are litigated then any assets owned personally can be exposed.
Income tax – Profits generated from owning an investment property are added to your taxable income, while losses from a rental property reduce your taxable income through negative gearing.
Capital gains – Individuals are entitled to the 50% capital gains discount for any gains made on the sale of an investment property assuming the property is owned for more than twelve months.
Land tax – Every individual is entitled to a land tax threshold ($969,000 for the 2023 year). Land tax is only attributable once you exceed the threshold, therefore it may take multiple investment properties to exceed the threshold.

Discretionary Trust

Discretionary trusts are a more complex structure for owning property, whereby a trustee owns the property on behalf of the beneficiaries of the trust.

Income tax – A trust is not taxed in its own right. All profits must be distributed to its beneficiaries.
Capital gains – Trusts are entitled to the 50% capital gains discount for properties owned for more than twelve months, any gains must be distributed to the beneficiaries of the trust.
Land tax – Discretionary trusts are not entitled to a land tax threshold, which can make owning property in a trust prove very costly.

Company

Companies are one of the age old ownership structures. Like every investment structure there are some key considerations:

Asset protection – A company is a separate legal entity to the individuals who are the directors and shareholders of the company. This structure provides a great form of asset protection for those that are receiving the benefit of owning the property.
Income tax/capital gains – A company pays tax on its income and capital gains at either 30% or 25%. Note that any profits generated by the company must be paid out as dividends to the shareholders.
Land tax - A company is entitled to the full land tax threshold of $969,000 (for the 2023 year).

Self-Managed Superannuation Fund (SMSF)

SMSFs are becoming an increasing popular investment structure. They allow individuals to take control of their retirement savings and have more choice around what they want to invest in. Factors to consider if an SMSF is used to invest in property:

Asset protection – An SMSF is a separate legal entity to the fund’s members. It is important to consider that investing wholly in one asset in the SMSF poses a diversification risk. If something were to happen to the property all of the superannuation funds could be at risk.
Income tax – Generally an SMSF is taxed at 15% on its income, this may be lower depending on the member’s age and super balance.
Capital gains – SMSFs are entitled to a one-third capital gains discount for any gains made on the sale of an investment property, effectively bringing the tax on any income down to 10%.
Land tax - An SMSF is entitled to the full land tax threshold of $969,000 (for the 2023 year).

If you looking to enter the property investment market or would like to discuss your current properties, please make sure you talk with us to gain clear insights and guidance. Our team at BLG Business Advisers are Wollongong Accountants who service right around Australia. There is no cost or commitment involved in an initial chat with us, which leaves you free to decide if we are the right fit for you.

Whatever you decide we wish you and your business every success!