| Buying Investment Property in a Trust
Trust structures are becoming increasingly popular as ownership structures for Australian property investors due to their various advantages and disadvantages.
Choosing the right ownership structure for your investment property can be complex, but it’s important to determine why you’re buying the property, what purpose it serves, how long you plan to hold it for, and the estimated cash-flows of the property. These answers will help you and your accountant decide on the best ownership structure for your property in the long term.
A trust is a vehicle to hold assets where the legal owner is not the beneficial or eventual owner. The trustee carries out the business on behalf of the trust’s members or beneficiaries, creating a separation between the owner of the asset and who will benefit from the asset. A trust is established by a trust deed that sets out the terms of the trust, including the trustee, the assets held in trust, and the beneficiaries.
Commonly used trusts include self-managed super funds (SMSF), discretionary trusts, family trusts, unit trusts, and hybrid trusts. Trusts offer many advantages, such as tax planning flexibility, asset protection, and effective estate planning, while also having disadvantages, including costs and complexity of set up, different tax thresholds, increased land tax, capital gains tax implications, inability to distribute losses, and complex taxation rules.
There is no perfect solution, so it’s essential to seek the advice of a good, property-focused accountant before proceeding with any ownership structure. A properly drafted and managed trust can provide significant benefits, but it’s important to consider all aspects before making any decisions.
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