Who should be the Purchaser - Individual, Company, Trust or SMSF Property Ownership

There are four broad types of ownership to consider when purchasing a property:

personal name;

company;

trust; and 

self-managed super fund (SMSF).

Each different form of ownership has vastly differing implications in terms of asset protection and tax effectiveness. 

It is vitally important to consider which type of ownership you will adopt before you buy.  Wherever you are unsure, talk to your accountant or tax advisor before committing to purchase the property. Changing entities after you enter into a Contract to purchase may cost you plenty in terms of additional stamp duty or a greater capital gains tax (CGT) liability.  

Each form of ownership suits different people, and has a range of benefits or disadvantages depending on your circumstances.  

PERSONAL NAME 

With this form of ownership, you as an individual, or with other individuals, appear on the title to the property. 

Generally speaking, personal name ownership is suitable for the vast majority of residential property owners. This includes people who are buying a home to live in, primarily because personal name ownership, in most instances, enables the owner to claim a full exemption from CGT. 

Personal name ownership is also suitable for those on high incomes buying an investment property.  This is due to the benefits associated with negative gearing, which can significantly reduce liability at tax time. It should be noted however that negative gearing has received plenty of bad press in recent years and will certainly come under review in the future.

Conversely, owning a residential investment property in your personal name means triggers a Capital Gains Tax liability when the property is sold. If the property is held however for over 12 months, the taxpayer will generally be eligible for a 50% discount on their CGT liability.

There are also tax implications if the property is positively geared.

COMPANY OWNERSHIP

A company is in itself, a separate legal entity which can both acquire and dispose of assets, lodge tax returns, pay tax, can sue and also be sued.

Company ownership is generally inappropriate for owner occupiers. This is due to the fact that companies aren’t eligible for an exemption on CGT.

Company ownership is also unsuitable for residential property investors, because companies can’t get the 50% CGT discount applicable to property held for more than 12 months.  

In some cases, company ownership may be suitable for commercial properties. This could include businesses who wish to acquire their own premises. Such an ownership structure would generally be at the suggestion of your accountant of financial advisor. It is vitally important that you consult your advisor if you are considering purchasing a property in the name of your company.

TRUST

Unlike an individual or company, a trust is not a separate legal entity. 

A Trust is a vehicle to hold assets on behalf of nominated beneficiaries (that is, the individuals or companies whom you wish to receive income or capital gains from the trust’s assets).  

It’s difficult for creditors to get hold of assets in a trust because they are not owned by the beneficiaries. Trusts also enable you to minimise the tax liability from rental income and capital gains by distributing them amongst a multiple beneficiaries with the lowest marginal tax rate.

Conversely, trusts can only distribute profits, not losses. This makes them unsuitable for most residential property investors, who rely on negative gearing benefits to hold their assets.  

SELF MANAGED SUPERANNUATION FUND (SMSF)

Superannuation is basically saving money now for when you retire. The savings are paid into your super fund by your employer. The majority of people  have their super in a fund managed by a third party.

The government also encourages individuals to make voluntary contributions from your pay or savings to increase your super with generous concessions.

However, a growing number are running their own funds. The main reason to buy residential property in an SMSF is because of the concessional tax rate: 15% on monies held in the fund and zero when they are withdrawn upon retirement.  

SMSFs aren’t appropriate for owner occupied property or holiday homes. This is due to the fact that assets in the fund cannot be used for personal use, even if it’s only for a week or two each year. 

Typically, this method of ownership is most useful for those with an appropriate amount of amount of money held in their existing superannuation or in their SMSF. This us mainly due to the fact that:-

* lenders require a higher percentage deposit from the SMSF. You can typically borrow up to 80% for residential property if your fund has a corporate trustee, and 72% if your fund has individuals as trustees.

* there may be higher loan setup costs and higher interest rates; and

 * SMSF regulations can be complex and costly, with annual administration and compliance costs averaging $2,000.00. 

Owning a property in a SMSF can have a significant impact on the security and tax effectiveness of your residential property portfolio.  These impacts can also vary when your circumstances change. Accordingly, it is vital that you obtain detailed advice from your tax advisor.

First State Conveyancing has considerable experience acting for individuals, companies, trusts and SMSF’s alike. For any property related queries, contact First State Conveyancing TODAY!

In 2012, a comprehensive review of the Swimming Pools Act 1992 was finalised. This review identified a number of amendments designed to enhance the safety of children under the age of five years around private (‘backyard’) swimming pools in NSW.

The Swimming Pools Amendment Act 2012 commenced on 29 October 2012 and makes a number of amendments to the Swimming Pools Act 1992. Additional information about the staged implementation provisions is also provided below.

The staged implementation of the Swimming Pools (Amendment) Act 2012 can be summarised as follows: 

1. NSW Swimming Pools Register commences on 29 April 2013
2. NSW Swimming pools to be registered by owners by 29 October 2013
3. Pool owners require a compliance certificate before sale or lease of their property from 29 April 2014

If you have a swimming pool, or know someone who has a swimming pool, please note that you should now commence registering your swimming pool with your local council.

To register a pool, pool owners will need to know:

• Address of the pool/spa.
• The type of property such as a private residence, multi-occupancy (units etc) or tourist and visitor accommodation.
• If the property is on a waterfront, land greater than 2 hectares or less than 230 square metres.
• When the pool/spa was built (3 choices of date range's apply).
• If the pool barrier has been substantially modified or rebuilt and when that took place (3 choices of date range apply).

Pool owners have six months (until 29 October 2013) to register their swimming pool. Penalties will then apply for failing to register.

From 29 April 2014. if you are a a pool owner, you must obtain a Swimming Pool Compliance Certificate before you can sell or lease your property. From a conveyancing perspective, this is the most important aspect of the legislation. 

If you have any queries regarding the obligations imposed by these amendments, please contact First State Conveyancing. 

What is a Restrictive Covenant?

A Covenant is, in essence, a promise.

A restrictive covenant is a private written agreement between landowners to restrict the use or development of land for the benefit of other land. The land where the restrictions apply is called the ‘burdened’ land. The land that benefits from the restrictions on the burdened land is called the ‘benefited’ land.

A Restrictive covenant will most likely be registered on the title to a property when a developer subdivides land for sale and wishes to apply some restrictions on the use and development of the lots to benefit or protect other land.

A covenant that limits the use and development of a lot to a single house is a common type of restrictive covenant. Covenants also restrict the type of building materials that can be used for new buildings. The more extreme forms of covenants we have seen can limit the type of turf that can be laid on a particular property.

It should be noted that the onus is on the owner of the benefited land to enforce the covenant. It should also be noted that most Environmental Planning Instruments, such as Local Environmental Plans, contain provisions suspending the operation of covenants which have the effect of restricting development that would otherwise be permitted under the Environmental Planning Instrument.

For any queries that you may have in relation to restrictive covenants, call First  State Conveyancing today on 1800 180 102.

2013 Land Tax Threshold

The NSW Valuer General has determined that the land tax threshold for the 2013 land tax year is $406,000.

The new value reflects a 2.5% increase on the threshold for the 2012 land tax year which was $396,000.

The threshold for the 2011 land tax year was $387,000.

You may be liable for land tax if you own or part-own:

               vacant land, including vacant rural land

               land where a house, residential unit or flat has been built

               a holiday home

               investment properties

               company title units

               residential, commercial or industrial units, including car spaces

               commercial properties, including factories, shops and warehouses

               land leased from state or local government.

If you have any land tax related queries, Go to http://www.firststateconveyancing.com.au

Fixed Rate Interest Rates VS Variable Rate Interest Rates

If you are in the market to buy a property, unless you are one of a very small minority, you will need to obtain finance to assist with the purchase.

The perennial question amongst borrowers, both new to the market and otherwise, is whether to lock in a fixed rate or to stick with your lenders standard variable rate.

There is no definitive answer to this question. The answer is predictably dependant on the borrowers own personal circumstances.

Some of us decide to fix because our circumstances dictate that the certainty of a fixed rate is necessary. For example, if your employment or income varies, a fixed rate may be more attractive as you know the minimum amount required to pay is constant. Alternatively, you may elect to have a variable rate for exactly the same reason thereby allowing you to make higher repayments than those scheduled without the penalties attached to fixed rate loans.

You should also consider whether your borrowing costs will be reduced by electing to choose fixed or variable loan.

Furthermore, if you are looking to sell in the imminent future, fixed rates may not be the way to go as the break costs for breaking a fixed rate loan could be disastrously high.

One option is to consider a split. Why not fix half of your loan and leave the rest as variable? Fixing your home loan needn’t be an all or nothing exercise. Alternatively, if sticking with a variable rate, look at an offset account which you can pour your savings into.

Historically, the long term average variable rate sits at around seven per-cent. With some super attractive fixed rate loans available, there are plenty of people currently locking these rates in.

One thing you clearly shouldn’t be doing is taking a punt on the future movements in interest rates. No one, including the so-called experts, has a 100% success rate in picking the winner come Reserve Bank Meeting day.

This correspondence is for the benefit of our clients and our friends. It is not intended to be construed as professional financial advice.   First State Conveyancing recommends that professional advice is obtained by borrowers before any action is pursued.

Interest Rates left On Hold

The Reserve Bank has today announced that it has left interest rates on hold.

The cash rate was today left unchanged at 3.25 per cent.

This surprise announcement means that today is the first Melbourne Cup day in six years that rates will remain unchanged.

BUYING A PROPERTY - FIFTEEN STEPS TO SETTLEMENT

From a purchaser’s point of view, settlement is the day that they get the keys to the property – however in reality it’s much more than this.

                Settlement is the day when you, the purchaser, instruct your First State Conveyancer to hand over the balance of the purchase monies to the vendor’s conveyancer/solicitor, and your First State Conveyancer authorises, on your instructions, the release of the deposit to the vendor.

                In return, the vendor conveyancer/solicitor hands over to your First State Conveyancer the Certificate of Title and documents transferring title to you and arranges for the keys to be released to you. If you have arranged a loan to assist you with your purchase, then your First State Conveyancer will also hand over the Certificate of Title to the lender’s solicitor as security for your loan.

                Issues can arise around settlement, so take note of the following checklist to minimize so that you are fully aware as to settlement process.

1.                      CONFIRM DETAILS

You, as the purchaser, should confirm the date, time and venue for settlement of your purchase. Normally, you would not attend settlement. On the morning of settlement, check the property to confirm that it is in the same condition that you saw it before exchange of contract. You may also take any cheques required for settlement to your First State Conveyancer, or you can arrange to deliver these the day before.

2.                      SETTLEMENT STATEMENT

You will receive a settlement statement from your First State Conveyancer just prior to settlement, showing the funds required for settlement, for your approval. Sometimes it is difficult for your First State Conveyancer to give this information as early as they would like to as they will be waiting to receive information from the vendor’s conveyancer/solicitor, who in turn could be waiting on receiving the relevant information from the seller’s lender.

3.                      COUNCIL RATES

The settlement sheet will usually show the adjustment for local council rates. Rates are adjusted between the vendor and purchaser, as at the date of settlement; usually, the rates owing to council are paid in full from the vendor’s money, and the purchaser’s share is refunded to the vendor by means of an addition to the purchase price. Your First State Conveyancer will advise the Council following settlement as to the change in ownership so all future rates and notices will be issued to you as the new owner.

4.                      WATER/SEWER CHARGES

In metropolitan Sydney (Sydney Water) and in regional areas (local council/ local water authority) relevant bodies make a charge for water and sewer availability and for water usage. The water rates usually run quarterly and, on settlement, will generally be paid to the end of the current quarter by the vendor. These charges are adjusted between the vendor and purchaser as at the settlement date. You will only pay rates and charges for the time after you complete your purchase, or after the time agreed with the vendor.  Once again, your First State Conveyancer will advise the water authority as to the change in ownership so all future rates and notices will be issued to you as the new owner.

5.                      STRATA LEVIES

Strata Levies only apply where the property is a strata property, such as an apartment or townhouse. Usually, the strata levies run quarterly and, on settlement of your purchase, will be paid to the end of the current quarterly levy period by the vendor. Prior to settlement, your First State Conveyancer will obtain an original certificate of currency of the owners corporation insurance, so that you can confirm that the building is insured. Sometimes, your lender may require evidence of the insurance being in place and will want their interest as mortgagee to be noted. Your First State Conveyancer will ensure that all of your mortgagees requirements are satisfied. Your First State Conveyancer will also advise the owners corporation or the managing agent following settlement as to the change in ownership so all future levy notices will be issued to you as the new owner.

               

6.                     REGISTRATION FEE

Where applicable, the vendor will allow you a credit at settlement for any registration fee that must be paid to the Land Titles Office for the removal of the vendor’s mortgage or other dealings from the title. Your First State Conveyancer will discuss with you any dealings that need to be removed, such as caveats.

7.                      MONEY REQUIRED FOR SETTLEMENT

If you are using your own funds for the purchase of your property, then you will have to arrange for a bank cheque (not personal cheques) for settlement. This will normally be deposited into the First State Conveyancing Trust Account. Your First State Conveyancer will then draw cheques according to the vendors direction. Alternatively, you may have cleared funds in an account from which your lender can, and has prior authority to, draw them from. If you have arranged a loan, your First State Conveyancer will usually arrange for your lender to deliver the cheques available from the proceeds of the loan to settlement

8.                      DIRECTION TO PAY

                The vendor can determine how the balance of the purchase price must be paid on settlement, and this is normally done by directions for payment. For example, the vendor can ask you to provide cheques to pay the rates owing, to pay legal bills, to pay off a mortgage – but the money comes from the vendor’s sale proceeds, not out of your pocket.

9.                      FIRST STATE CONVEYANCING FEES

You will generally be advised prior to settlement of your First State Conveyancing account and this will be paid at settlement.  As First State Conveyancing is a flat fee conveyancing service, there will be no additional professional fees or disbursements incurred, as a result of   additional legal services required by settlement.

10.                  KEYS

The keys may be collected from the agent immediately after settlement. We recommend that you consider changing locks after settlement.

11.                  REGISTRATION

If you have a loan, then following settlement your lender/mortgagee will register the transfer and mortgage at the Land Titles Office. The mortgagee will retain the Certificate of Title as part of the security for the loan. Alternatively, your First State Conveyancer will arrange registration of your title following settlement and will forward you a copy of the title once registered. Your title will be held in the First State Conveyancing safe and is available for collection with twenty-four (24) hours notice.

               

12.                  ELECTRICITY AND OTHER SERVICE

                It is up to you to arrange for electricity meter readings and the connection of other services by suppliers on the settlement date.

13.                  FINAL INSPECTION

                You should inspect the property just before settlement to ensure all is in order. The     property should be in the same condition as at the date of settlement, as it was when you saw it prior to exchange of contracts, fair wear and tear expected. We advise you to take photographs and date them. If there are any issues that you wish to raise, do so with sufficient time so that they may be resolved before settlement. If relevant, you should ensure that any vendor or tenant has vacated the property.

14.                  CHANGE IN OWNERSHIP

The Land Titles Office, will notify Council, the Valuer General (and Water) of the change in ownership, based on a form that is lodged by your First State Conveyancer or your lender’s solicitor after settlement.

15.                  INSURANCE

Perhaps your most important responsibility in the lead up to settlement is to adequately insure the property.

If purchasing a house, you should arrange for a policy of building insurance to commence at the earlier of:-

·         the settlement date; or

·         the date that you take possession of the property.

You should also consider the following insurances, depending on your circumstances:-

·         contents insurance if you keep contents in the property;

·         landlord’s insurance if you lease the property;

·         Public Liability Insurance.

In the event that you are unsure as to what insurances you need to obtain, you should speak with an insurance broker.