For at least the last 20 years there has always been an advantage in not acquiring investment properties in your own name. The main reason people did acquire a property in their own name was as a result of poor quality advice. Unfortunately some people are still receiving this advice today.
A large number of factors, including State and Federal taxes, needs to be considered, however the most flexible structure is used by less than 1% of investors [Source:Morgan Poll]. Once again the only explanation is poor advice. The use of unit trusts as a vehicle for property investment has many advantages. Compare Sue and Phil two scenarios. Under the first they acquire the properties, in NSW, in their own name and in the second they acquire each in a Land Tax Unit Trust.
1. In their own name
- Negative gearing in one or both names depending upon whose name(s) are on the loan documents,
- Rental surplus and capital gain to be taxed equally to Sue and Phil,
- A single land tax threshold [NSW Land Tax Management Act defines owner to include joint ownership],
- If they establish an SMSF they can't transfer the properties to the SMSF,
- If they want to transfer the properties to a family trust they will have to pay stamp duty*.
2. In a Land Tax Unit Trust
- Negative gearing in one or both names depending upon who borrows to acquire their units in the unit trusts,
- Rental surplus and capital gain to be taxed to unit holder (could be Sue and/or Phil or SMSF with 0% tax rate),
- Double land tax threshold due to Sue owning units in one unit trust and Phil in the other [Saving $6,000 compared to own name],
- If they establish an SMSF they can transfer the units in the unit trust to the SMSF as a contribution or in exchange for cash held in the SMSF,
- If they want to transfer the properties to a family trust they can do so without paying stamp duty*,
- If they have other security their SMSF can help pay the loan off over time.
* Property value less than $2 million in N.S.W. and W.A. Less than $1million in Vic. N/A in other states.