Who should be on the title, a more complex issue than ever February 2005 RETURN
Buying property other than the family home is becoming an increasing trend for our current generation. The reasons behind this are many yet include general investing, the need to fund our own retirements, the increased incidence in private holiday accommodation, businesses owning their own premises and the ever increasing flexibility of property finance. As an Agency heavily involved in wealth creation we applaud the process. What is becoming increasingly apparent is that it is no longer simple enough to buy without great consideration to the person or entity that will remain as the owner of the property. It is quite a complex issue to select the appropriate party. Lets discuss some of the scenarios that may require attention to ownership: - A rental property is purchased by Mr. B. as he wishes to obtain the maximum taxation deductions while negatively gearing. This seems very efficient structuring until the property is sold and he discovers the capital gains tax on the profit from the sale would be dramatically less had it been in the name of his wife, who did not work at all. - The owners of XYZ Corporation uses its balance sheet for the company to buy its own premises. The company is successfully sued for damages and must sell the property to fund the compensation claim. Later advice found that if the owners of the business held the property in a separate trust they would have quarantined the asset from that particular claim and could have maintained ownership. - Business woman Ms D. buys all her assets in her husbands name to protect them from any untoward events in the future. The husband now pays an exorbitant amount of land tax due to the aggregation laws of property holdings. $1000’s per year may have been saved if the assets were in different ownerships. - Miss B personally guarantees her new boyfriend’s business venture. Later the business fails and the mortgagor of the business tries to claim her investment property. Because the property had been held in an appropriate trust the asset was out of the creditors reach and retained by her. - Mr & Mrs C finalise a divorce settlement and the Family Law court rules the family trust must distribute the assets. The ATO then deemed the distribution as a dividend and taxable in that financial year. There was a hefty tax bill payable yet the property had not been sold. To pay the assessed amount the property had to be either refinanced or sold. - Mr & Mrs F. wish to financially assist their children in later life by purchasing property for them now. Should they buy in the children's names many of the rights of taxation benefits would be mitigated because of current assessment of minors. By purchasing in an appropriate trust structure they can hold the assets, get a reasonable taxation advantage and distribute the franked dividends to the adult children when appropriate. - Mr L. wishes to buy a short term asset and purchases in a separate company to protect it from a business venture. He makes a tidy profit and sells, not knowing that had he bought in his own name he would have qualified for a 50% exemption on the capital gains tax payable. These are very brief outlines on a very involved subject. We simply wish to point out that some basic investigations before any purchase will help you to maximise the benefits and profits of property ownership. Contact Jason Marston personally, your accountant or financial advisor.
Buying property other than the family home is becoming an increasing trend for our current generation. The reasons behind this are many yet include general investing, the need to fund our own retirements, the increased incidence in private holiday accommodation, businesses owning their own premises and the ever increasing flexibility of property finance. As an Agency heavily involved in wealth creation we applaud the process. What is becoming increasingly apparent is that it is no longer simple enough to buy without great consideration to the person or entity that will remain as the owner of the property. It is quite a complex issue to select the appropriate party. Lets discuss some of the scenarios that may require attention to ownership: - A rental property is purchased by Mr. B. as he wishes to obtain the maximum taxation deductions while negatively gearing. This seems very efficient structuring until the property is sold and he discovers the capital gains tax on the profit from the sale would be dramatically less had it been in the name of his wife, who did not work at all. - The owners of XYZ Corporation uses its balance sheet for the company to buy its own premises. The company is successfully sued for damages and must sell the property to fund the compensation claim. Later advice found that if the owners of the business held the property in a separate trust they would have quarantined the asset from that particular claim and could have maintained ownership. - Business woman Ms D. buys all her assets in her husbands name to protect them from any untoward events in the future. The husband now pays an exorbitant amount of land tax due to the aggregation laws of property holdings. $1000’s per year may have been saved if the assets were in different ownerships. - Miss B personally guarantees her new boyfriend’s business venture. Later the business fails and the mortgagor of the business tries to claim her investment property. Because the property had been held in an appropriate trust the asset was out of the creditors reach and retained by her. - Mr & Mrs C finalise a divorce settlement and the Family Law court rules the family trust must distribute the assets. The ATO then deemed the distribution as a dividend and taxable in that financial year. There was a hefty tax bill payable yet the property had not been sold. To pay the assessed amount the property had to be either refinanced or sold. - Mr & Mrs F. wish to financially assist their children in later life by purchasing property for them now. Should they buy in the children's names many of the rights of taxation benefits would be mitigated because of current assessment of minors. By purchasing in an appropriate trust structure they can hold the assets, get a reasonable taxation advantage and distribute the franked dividends to the adult children when appropriate. - Mr L. wishes to buy a short term asset and purchases in a separate company to protect it from a business venture. He makes a tidy profit and sells, not knowing that had he bought in his own name he would have qualified for a 50% exemption on the capital gains tax payable. These are very brief outlines on a very involved subject. We simply wish to point out that some basic investigations before any purchase will help you to maximise the benefits and profits of property ownership. Contact Jason Marston personally, your accountant or financial advisor.