There are many different ways to own investment properties; each have different advantages and disadvantages. Thinking about the long term impact of the ownership of property can save unexpected consequences in the future – think of the future property sale as much as the purchase. Taking the time before purchase your property to determine the most appropriate method of ownership is important… Once you have bought it, it can’t be changed without a tax impact. So what are some tax considerations of property ownership?
Single Self Ownership – High Income Tax Rate
Much of the attraction of property investment is negative gearing. Keep in mind, negative gearing is normally (and expected by the ATO) temporary. At some point the property will probably become positive adding to your tax bill for rent and then again when you sell (for a profit). When assessing whether to own property in the name of a high income earner, try to estimate the deductions versus the future gain, if the gains outweigh the deductions, then it may not be the most tax effective method of ownership.
Single Self Ownership – Low Income Tax Rate
Owning a property in the name of a person in a lower tax rate is the opposite of a high tax rate. The initial deductions will be less effective or nil from a lower income base, but future gains will also be assessed from a lower base, attracting potentially thousands less in tax.
This is the more common ownership method for couples. The property is owned by a split percentage. Gains and deductions are split by that percentage. The advantages and disadvantages of this method will depend on the incomes of each party, however where incomes are similar, this can spread the tax impact.
This involves a more complex ownership strategy which you should seek tax and legal legal advice on. A trust, depending on the type, provides a higher level of control in dealing with and planning for investment property income and tax. A trust structure has greater costs associated, however can provide further value in investment planning. Talk to your accountant!
Companies do not have access to the capital gains tax concessions that individuals and trusts have. Most accountants will tell you as a general rule of thumb – income for companies due to lower income tax rates and capital assets held in individual or trust structures to take advantage of the capital gains concessions. Depending on the nature of the company and the assets, there may be other concessions and having an accountant assess your position will assist you determine if company ownership is suitable.
Considering an Investment Property?
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