Tax Refund

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Should Property Investor Register Investment Property on Family Trust?

In Australia, people often come up with questions about buying investment property on family trust. We are here to clear this concept for once and all to everybody in Australia. Most of the people are nervous while making their first investment in buying property which is why they want to get hold of every technique in order to be on the safe side. Family trust is a good option or not, we will unveil it within today’s editorial. Let us consider a case for further discussion. Think of yourself willing to purchase a property in Sydney with intention to sell it after living in it for few months by borrowing through family trust. The case covers major aspects of borrowing, registering with family trust, accommodating and selling for generating income.

Getting To Know The Basics

First of all, we would like to inform you that registering investment property on family trust is not a rare thing as many investors opt for this method. It comes with various pros and few cons. We are here to help you analyze both and make a decision for yourself. Let’s get the basic understanding of what a trust is and how it works.

Trustee would be controlling and handling the property matters related to benefits received by the beneficiaries. Who is a beneficiary in the family trust? The beneficiaries in this trust are your family members. Trustee can be a person or the company owned by a person. Trustee has the right to make decisions regarding how the beneficiaries will be benefited from generated revenue.

Advantages of Using Family Trust for Registration of Investment Property

Tax Return Implications – Being a trustee you are entitled to handle major operations such as selecting individuals who receive rental income. How is this beneficial? You can get the income tax payables reduced by selecting the right person. In case one of your spouses isn’t earning taxable income, he/she would be paying lesser tax on the income received with selling of property. The trustee cannot receive any tax benefits from trust operations if he/she does not agrees to distribute the generated income to spouse and other family members with lesser marginal tax rate. Visit ATO for more information.

Equity Protection – Family trust plays its role when it comes to protection of equity in the invested property against potential creditors. Exposing any personal liability will keep you better placed if any claim has been filed against you as a person. The benefits of family trust are huge if you use it in the right manner with appropriate guidance.

Accommodation in Invested Property – If you decide to stay in the investment property then the family trust would be renting the property to you. Offsetting expenses like interest against income from rent is another benefit of having family income. In case the property is purchased under your name, you wouldn’t be able to make any expense claims for the purpose of deduction in tax payments till the time period when property has been leased to a tenant.

Capital Gains Tax and Online Tax ReturnRegistering the investment property under family trust will allow you to receive benefits of capital gains tax in accordance to small business concessions. It is the same process which is repeated if the property is registered under your name. In case the family trust holds property under its name for 12 months or more then it is entitled to receive benefit of 50% discount. It means the amount on which tax has to be paid becomes half of the actual.

Disadvantages of Registering Investment Property under Family Trust

Everything has pros and cons. Being a trustee and living in the property you won’t be allowed to receive the claim of principal residence place for subtraction from capital gains tax refund. At the same time, you wouldn’t be able to make any claims for grant of first home owners. The family trust doesn’t allow the trustee to negatively gear the investment property for the purpose of offsetting interest amount from personal income.

Registering investment property under family trust is not the ideal option if you want to make the investment with inclusion of other people rather than family members. At the same time, you cannot bring in outside investors once the process has been started. If you wish to do this, unit trust is the ideal option for you.

It is the situation which will vary from person to person. Going for family trust may or may not suit your case. It is for you to decide after gaining complete understanding about the concept. Make sure to discuss the situation with professional financial adviser. By gaining the consultancy service from a professional, you would be able to have clear picture of your situation. Make a wise decision when investing in purchase of property.  We hope today’s editorial has benefited you in many ways.