Another effective (but usually poorly understood) purchase structure is the “Trust Investment Structure”. There are actually five popular purchase structures – and this article aims to discuss Trust and SMSF (Self Manged Superannuation Fund).
Before moving on, it is advisable to read the previous post as it contains the first three (Individual, Partnership, and Company) investment structures. Also, don’t forget to consult with a professional conveyancing solicitor about the legal and financial aspects of the purchase structure that suits your personal references and financial objectives.
Trust Investment Structures –
As mentioned, trust investment structures are effective but most often misunderstood as it is quite complex and difficult to maintain. Unlike other existing ones, executing a trust purchase structure involves a settlor, beneficiaries, a bunch of official (legal) documents detailing the establishment of the trust, and even has four sub-types (discretionary, unit, hybrid, and supeannuation).
For a general overview, a trust investment structure is advantageous in terms of (a) asset protection, (b) capital gain discount (if the property is owned for more than 12 months), (c) better than a company structure when it comes to regulations and cost.
On the downside, aside from being relatively complex, negative gearing is not passable to individual investors. It is also subject to both capital loss and rental loss quarantine. Lastly, property transfers can be quite tedious.
Self-Managed Superannuation Fund or SMSF –
A self-managed superannuation fund is generally defined as a form superannuation fund that allows members more control about their savings.
As early as 2007, many Australians are curious and researching the pros and cons of buying properties using SMSF. This is not hard to understand since (as mentioned on the paragraph above) SMSF give members more control of their savings – in this case, investors have greater control on how their superannuation is being invested.
On top of this, SMSFs provides excellent asset protection benefits, 15% rental income tax, and no more taxes when pension age is reached.
Unfortunately, just like trust investment structure, SMSF purchase structure is equally complex. Additionally, if regular home loans are straightforward, SMSFs have stricter rules and regulations that can be quite confusing for someone who is not familiar with the ins and outs of the real estate industry.
Seeking the advice of an expert is a good way to save you all the troubles of real estate jargons and confusion. A professional conveyancing solicitor would be able to discuss the full and intricate details of both trust and SMSF investment structures – its long and short term benefits, as well as the difference and what property structure to go for.