Home
- Acquiring a property in your own name prevents you from transferring it to your superfund or pension fund in the future.
- Acquiring property in the high income earners name exposes it to creditors and high tax rates when it becomes positive.
- A large number of property investors who have been acquiring property and renovating incorrectly claim some renovations as repairs & maintenance that form part of the cost base.
- ATO to compare 8,000 tax returns with share and property sale data. Holding a property for 13 months does not necessarily entitle an investor to the 50% CGT discount
- The most flexible property investment structure is a unit trust/hybrid discretionary trust. This allows negative gearing and the superfund can get involved at a later date.
- You can negative gear a rental property using a trust.
- Positive cashflow property may also produce negative gearing for tax purposes.
- You can use your super as a deposit on a rental property.
- ATO has announced it is about to send out 15,000 letters to property investors asking them to explain their claims and 5,000 will be asked to complete detailed schedules.
- Last year 1.3 million people declared $12.6 billion in rent and claimed $13.2 billion in deductions. Source ATO.
A large number of seminars are being held that teach you how to get rich from property investment. It appears the only people getting rich are the promoters of these seminars.
We look at what strategies the promoters are teaching the attendees plus a whole lot more. We also take a critical look at some of the more dubious practices of certain wealth creator promoters. DON'T be tricked into paying thousands of dollars for what we provide for FREE.
Overview
Property investment is becoming the most popular form of wealth creation. Many people consider property to be more secure than shares or managed funds.
Negative gearing with a trust
The most flexible and efficient way of holding property when negative gearing is through a hybrid discretionary trust. This allows the high income earner to claim the loss in their own return and when the property turns positive distribute the rent to low income earners. Every person looking at investing in residential property should consider a hybrid discretionary trust and what benefits that provides to them.
Why you shouldn't acquire the property in your own name
The majority of rental property acquisitions occur in the name of individuals. Despite the large number of disadvantages that this type of structure attracts it is still the most popular.
The following reasons are why you should avoid acquiring a rental property in your own name.
- There is NO flexibility in relation to the distribution of income.
- There is NO flexibility in relation to the distribution of capital.
- The property may be poisoned and therefore not able to be transferred to a superfund.
- The property is exposed to creditors.
- The maximum benefits of negative gearing are not achieved.
1. No flexibility in relation to the distribution of income
If the property is acquired in the name of an individual or individuals then the rent has to be distributed to the individual's in the proportions.
If, however, the property is acquired by a discretionary trust then the decision as to who receives the income is an annual one and can change every year. Flexibility is crucial when considering any tax planning opportunities.
2. No flexibility in relation to the distribution of capital
As with the income if the property is acquired in the name of an individual distributions of capital including any capital gain is assessed in the proportions set when the property was initially acquired.
Once again a discretionary trust will allow for the distribution of the capital including any capital gain amongst a wide range of beneficiaries. This is important as there could be significant savings in relation to any capital gain.
3. The property might be poisoned
A self managed superfund is prohibited from investing in a unit trust where the unit trust owns a residential property acquired from a member. If the unit trust owns a rental property that was originally acquired from an arms length third party then a self managed superfund could become a unitholder.
It is for this reason that every person acquiring residential real estate as an investment should consider a unit trust as the structure for acquisition. Click here for more information on poison property.
4. The property is exposed to creditors
If the property is acquired in the name of individuals it is subject to any litigation against that individual. If, however, the property is acquired in a discretionary trust then the assets of the trust are not subject to claims against any beneficiaries.
5. The maximum benefits of negative gearing are not achieved
The maximum benefits of negative gearing including the ability to refinance and borrow for private reasons is not available if the property is acquired in the individuals name. This is especially important since the ATO released Income Tax Ruling TR2003/9 on 30 July 2003.