JUMP Property have reviewed an article in Smart Property Investment Magazine (a magazine written by investors for investors) and we particular like this article on tax implications on an investors property portfolio.
When looking at the tax implications of a property portfolio, a key consideration is whether you plan to buy through your own name or a separate entity. For investors with an ambitious goal, a more complex Structure may be the way to go.
You may want to use a trust structure for asset protection, for instance – or if you plan to make buying and trading in real estate your career, then you may need advice on setting up a company structure to eventually manage your investments.
As each structure attracts a different tax scale, investors should sit down with an Accountant to determine which suits best.
The main structure an accountant is going to look at is a discretionary trust. Some may look at Hybrid trust, which is a combination of discretionary and unit trust, and some may look at a company.
They are all legitimate strategies and your accountant is going to know based on your plans and your current position, ways in which you can legally minimise tax.
Holding properties in several structures has the major advantage of diversifying investments across different entities.
Aside from income tax, investors also need to consider state based taxes like land tax and stamp duty. Spreading your portfolio across multiple state markets may cut down on your tax bill in some circumstances.
On a federal level, investors should start thinking about capital gains tax (CGT), which will be payable when they sell properties in their portfolio. Investors should know if they need to sell then do they have provision to pay CGT?
Taking advantage of tax deductions can take the pressure off an investor’s cash flow. Depreciation can play a huge role in boosting an investor’s cash flow, especially on new properties. Depreciation can be a game changer and a schedule should be done, even on older properties. Renovations can result in excellent depreciation write-offs.
While negative gearing may come into play in a large portfolio, cash flow needs to be carefully managed, also negative gearing may not be available to investors who buy through a trust or company structure.
The best finance and tax strategy is one that incorporates the investor’s personal circumstances and ambitions, as such qualified advice is essential.
Investors contemplating investing in property in a serious way, buying more than one or two properties should strongly consider obtaining qualified and experienced advice from a mortgage broker, mentor or coach and accountant as the difference can be a mediocre property portfolio and an asset portfolio that delivers long lasting wealth.
JUMP: Investors who would like more accounting advice on structuring their property portfolio to maximise their tax advantages may want to contact Mr Nic Formichella, Director at BCFR Accountants
# Reference: Smart Property Investment, written with the permission of Sterling Publishing.