Have you chosen the right entity?


Have you chosen the right entity to buy new property?

When buying new property many buyers rush to sign a contract without considering what entity should be used to purchase the new property. Not carefully choosing the correct entity can have significant tax and other consequences later.

Below are some of the advantages and disadvantages associated with the more popular entities. What entity is right for you will depend on your particular circumstances, including your future intentions with the property.

There are a range of tax issues that need to be considered such as land tax, stamp duty, capital gains tax and GST. Prior to signing a contract, buyers should discuss all implications of what entity to choose with their financial advisors.

Individuals

  • The most common and simplest choice for many buyers.

  • Individuals are often entitled to grants (e.g. first home owner), tax (capital gains and land tax) and stamp duty concessions for residences, and tax benefits upon the sale of the property.

  • Generally buyers should avoid buying property if at high risk of being exposed to litigation and bankruptcy (certain professionals such as doctors or accountants or sole directors of companies are considered more at risk). This action may result in you losing the property.

Discretionary Trusts

  • Trusts often have more tax benefits compared to other entities.

  • The assets of the trust are often protected if the individuals controlling the trust are exposed to litigation.

  • Limited access to government grants and certain tax and stamp duty concessions, as well as paperwork and ongoing compliance issues.

Company

  • Similar to trusts, the assets owned by companies are protected if the individuals controlling the company are exposed to litigation.

  • Ongoing regulation compliance is required.

  • Property purchased using a business trading company could expose the property if the business is sued or suffers insolvency issues.

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