Choosing the right investment ownership structureby Wealth Architects / 04.10.2018
We all know that choosing the perfect investment and getting the timing right are both critical. What people often overlook, however, is selecting the right investment ownership structure.
How you own an investment is a decision you’ll want to nail from the outset.
That’s because the asset ownership structure you select can dictate the tax you pay, access to capital, estate planning, control of your investment, costs associated with maintaining it, and the risks you face.
Changing your mind later can come with adverse tax consequences such as Capital Gains Tax and stamp duty.
Today we’re going to take a quick look at your options when it comes to asset and investment ownership.
Personal ownership – sole or joint
Sole ownership is the complete ownership of an asset by one individual. This is perhaps the simplest and least costly form of asset ownership.
You’re entirely responsible for the asset, which means you carry full liability for all debts, finances and taxes.
Joint ownership involves two or more individuals owning a share of the asset.
Depending on your situation there may be tax benefits or tax discounts associated with joint ownership. For example, joint ownership of a property by a husband and wife may qualify for a tax benefit. You may also receive a 50% discount on Capital Gains Tax (CGT).
One of the main disadvantages of personal asset ownership is that it offers little protection for your investment if you become bankrupt or are sued.
A trust is an investment structure that obliges a person, or group of people (trustees) to hold assets for the benefit of others.
Trust ownership can offer additional asset protection, allow for profit sharing and tax benefits, including a 50% discount on CGT. It can also help with estate planning and reduce the costs associated with transferring asset ownership.
Trusts, however, come with additional cost to establish and maintain and are also associated with more reporting and administrative responsibilities than personal ownership. Depending on the trust structure you select, it can also be more complicated to secure an investment loan.
Company ownership can help protect assets from personal losses and liabilities. It can also deliver tax benefits because any income and capital gains is taxed at the company tax rate of 30% (which may be significantly less than your personal marginal tax rate).
On the other hand, companies miss out on the 50% discount on CGT that is possible through personal or trust ownership.
Your control over the asset – including when you buy and sell – may also be diluted via a company structure.
Investing through a superannuation structure can deliver significant tax benefits as any income earned via super is generally capped at 15% (0% in retirement). CGT from investments via super may be discounted by a third if held longer than 12 months.
Investing through your super is also an estate planning strategy that many people consider.
That said, there are complex rules around super contribution caps, tax treatment, access and any borrowing arrangements when investing via super. The type of investment may also be restricted.
Get in touch
Understanding which ownership option is the best fit for you and your asset can be complex. As you can see, it’s not straightforward – there’s a lot of considerations and no two situations will be the same.
So if you want to get it right from day dot, get in touch.
We can take into account all relevant information to help you decide what option to choose so your asset is owned in the most beneficial way.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.