There Are 5 Most Important Different Types of Property Ownership Structures
Before considering investing in an Australian property, make sure you do your research to ensure you are purchasing within the right ownership structure to suit your circumstances.
When you buy a house, you are a property owner. Simple, right? But there are many different types of property ownership structures, each with its advantages. The type of property ownership you choose can affect your ability to interact with the property as well as any income you make from it. It is important to get professional advice during every stage of the purchase to ensure you are making the right choice for your circumstances. So, what are the five different types of property ownership?
#1 Personal ownership
Personal ownership of a property is the most common approach to property ownership. It is, quite simply, when you alone buy a property.
The advantages of personal ownership
For couples, having one partner purchase a property can be beneficial if one partner is in a high tax bracket. When that partner purchases the property, they will maximise the benefit of negative gearing for investment properties. However, if the property earns a taxable profit, it is better placed in the low-income earner’s name. By being a personal owner of a property, you are also eligible for a discount of 50% off the capital gains tax if the investment is held for more than 12 months.
The disadvantages of personal ownership
With personal ownership, you have little or no asset protection and have all the property expenses to bear.
#2 Joint Ownership
In a joint ownership, you can choose to be ‘joint tenants’ where ownership is split 50/50, or ‘tenants in common’ where you decide on ownership percentages.
The advantages of joint ownership
By purchasing a property together, you give yourself a better chance of getting a home loan. When buying with a partner, you’ll also split the costs of everything that comes with homeownership, like council rates, stamp duty and ongoing maintenance.
At the time of the property transfer, your property conveyancer will be able to break down the up-front and ongoing costs concerned with buying the property and help you split them according to your percentage of ownership.
The disadvantages of joint ownership
With joint ownership comes the need to compromise. You are both putting your hard-earned money into the property and, therefore, both have the right to an opinion about location, the number of bedrooms and how much work you are willing to put into a property. If you don’t see eye-to-eye on what you want in a property, it might not work out.
#3 SMSF property ownership
In a self-managed super fund (SMSF), you can use your superannuation to buy an investment property.
The advantages of SMSF property ownership
The rental income on an SMSF property is taxed at just 15% and capital gains at 10%. If you hold the property until after you retire, you will not be required to pay any tax on ongoing rent or capital gains if you sell. You can also have up to six people in an SMSF, so you can pool your resources to purchase a better property or purchase several.
The disadvantages of SMSF property ownership
In an SMSF investment property, you cannot live in the property or use the property yourself. You also cannot rent to family members.
#4 Company Ownership
As the same suggests, company ownership is when you use a company to purchase the property rather than buying it in your own name.
The advantages of company ownership
When a company owns the property, it is the company that is liable for any claims or financial responsibilities, rather than the individuals involved. As a shareholder, you are only liable for your percentage of ownership. The structure also works well for high-income earners because profit is taxed at a flat rate of 30 per cent.
The disadvantages of company ownership
There is no capital gains tax discount for company ownership of a property, and all profits have to be distributed equally among shareholders.
#5 Trust Ownership
In a trust ownership, the trustee looks after the property in the beneficiary’s name until it is transferred to that person. A trust, though similar, is not a company.
The advantages of a trust ownership
A trust provides good asset protection because the property is not held in your personal name. This form of ownership is also entitled to the 50% capital gains discount.
The disadvantages of a trust ownership
A trust is it cannot distribute losses to beneficiaries. Any loss remains within the trust, and this can limit the benefits of negative gearing.
Before considering investing in a property, ensure you have enlisted the right team of professionals to assist you with expert assistance and guidance. That means hiring a financial advisor who understands your goals and a property conveyancer who will guide you through the sale process and advocate on your behalf. If you’re in the process of buying an investment property, always seek the assistance of a reliable property conveyancer. Jim’s Property Conveyancing has offices in Melbourne and Brisbane and can provide you with comprehensive advice and assistance moving through your property transaction.