One of the most important aspect to consider when purchasing a property is the so-called “investment structure” (sometimes referred to as purchase structure).

Investment structures are not universal and there is no single perfect formula as it usually depends on the buyer’s objectives and financial capability.

 

But what is a purchase structure?

A purchase structure is generally defined as the way on how properties and investments are legally owned.

 

There are five commonly used investment structures and it is recommended to seek the advice of a reliable conveyancing solicitor to explain the financial and legal details (and benefits) of a suitable one for your next purchase.

 

>> Individuals

>> Partnership

>> Companies

>> Trusts

>> SMSF (Self-Managed Superannuation Fund)

 

We will discuss the first three investments structures on this article and the last two on a separate post.

 

Individual Investment Structure –

Let us start with the most common and simplest form of investment vehicle – the individual purchase structure.

 

This is when a person purchases a property and uses his / her own name. Assets held jointly (a couple for example) also falls under this category.

 

The main advantage of this structure is that it is easy to setup and manage. This obviously follows minimal setup cost, less paperwork to accomplish, and smaller compliance cost. If the property is a residential home, this will also be advantageous as long as tax concerned.

 

If the investment is negatively geared, it might be tax effective today. However, one has to remember that negatively geared resources owned by an individual entity will eventually shift to being positively geared. This would then spell increase tax liability.

 

Another drawback of an individual investment structure is when the property is sold in the future. Unless inherited, profits from the sale (capital gains) will be subjected to tax.

 

Partnership Purchase Structure –

This particular structure must not be confused with a joint tenant account – though the term “partners or partnership” may include family members, friends, and mutual business colleagues.

 

Similar to individual purchase structure, partnership investments are easy and inexpensive to set up. Another cost benefit of this structure is that individual partners may contribute to the budget pool thus expanding overall financial resources.

 

Since this structure has ownership divided to different individuals, disagreements between partners are a usual concern. Shared earnings and distribution can become a potential issue when the property is sold. Joint or individual liabilities can also raise questions if problems will arise.

 

Company Investment Structure –

As the name implies, company purchase structures are most suited for business objectives. The main benefit of this investment structure is the 30% tax rate on profits and if utilized properly with a strategic investment plan, this could work well for the investors.

 

There are a couple of setbacks with a company investment structure and the main one has to be the 50% discount rate on capital gains cannot be collected. Additionally, establishing a company investment structure is complex and expensive to setup – and this goes true for management and control as well.

 

That’s just about. As mentioned, we will discuss both Trust and SMSF investment structures on another post.

For more information about the three structures discussed here, please consult with your professional conveyancing solicitor.