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Property Investment Structures

PROPERTY FACTSHEET

tax effective property investment structures australia

Whether you are a novice or a seasoned property investor, it's important to understand that the way you acquire an investment property can have some substantial impacts on what you can actually do with it. 

Buy a property in the wrong tax structure and you may find that:
  • You're no longer able to transfer the property to a super fund
  • You incur the unnecessary expense of stamp duty if you change the property's ownership
  • You lose the ability to refinance and pay down non-deductible debt 
  • You may incur unnecessary land tax and other charges. 
With 90% of investors getting property acquisition wrong, how can you ensure you get it right from the outset? Let's look at each of the above in more detail. 

Transferring a property to a superannuation fund

SMSFs are often the best structure to hold property, provided it is free of debt, because of the tax concessions associated with super. 

Most property investors see their acquisitions as part of providing for their retirement, so being able to transfer a property into a self-managed super fund is vital. 

How you acquire the property is very important. Buying your property as an individual, as part of a discretionary or hybrid trust means that the trustee of your SMSF will not be able to acquire the property under rules outlined in the SIS Act. 

However, if it is acquired via a unit trust under an 'arms-length' arrangement then the SMSF trustee can acquire units in the unit trust once it is free of debt and the property has no security against it.  

If the other unit holders still have access to negative gearing, then your SMSF trustee may invest so long as the asset of the unit trust isn't being used as security. 

As you accumulate other assets such as a family home, they may be used as security and salary sacrifice arrangements may be used to reduce the debt at a 15% tax rate. 

SMSFs are complicated to manage and we always recommend that you consult with an accountant to understand your tax position for any property acquisition. 

Changing owners and stamp duty

Sometimes it is necessary to change the ownership of the property within your family group for various reasons.  

When a property is owned by an individual, discretionary trust or hybrid trust, any change in ownership will trigger stamp duty at ad valorem rates, which makes the whole exercise cost prohibitive. 

If, however, your property is held as part of a unit trust and it's valued at less than $2 million without any debt, then the change in ownership doesn't attract stamp duty where the ownership change is executed in an appropriate way.

Non deductible debt and refinancing

Refinancing non-deductible debt and changing it to deductible debt can be really powerful in wealth creation. 

This can only occur when the property is held as part of a unit or hybrid trust, not when it is held directly by an individual. 

Land tax threshold

When property is held by a hybrid trust, discretionary trust or unit trust, there is no land tax threshold thanks to a change in the rules from 31 December 2005. 

At that date, all unit trusts were classified as 'special' trusts and no longer able to access the land tax threshold. Most investment properties have to be in an individual's name to access the threshold, however this adds a sizeable amount to land tax. 

Fixed trusts are often used to comply with the NSW Office of State Revenue requirements, however any deeds need to be very specific to the Land Tax Management Act of 1956. 

Other considerations

Aside from the considerations above, there are numerous tax considerations when buying property such as CGT, GST and state taxes. Ensuring you invest in property via the right structure will help you to avoid being part of the 90% who get it wrong. 

More information

Investing in property and managing your tax requires careful planning to avoid some of the shocks that come with not setting up properly. 

For more information, please contact us on 02 9957 4033.

Download PDF Version: Property Investment Structures

Last updated March 2014. This factsheet is provided for information purposes only and is correct at the time of publishing. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances. 
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