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.