Buying property – whether residential or commercial real estate – is a popular investment for many Australians. But the way that you structure your property investment might have significant tax impacts depending on your situation.
Before you invest, you should know the advantages and disadvantages of each type of property investment structure. Here they are in a nutshell.
Unit trust property investment
Purchasing a property in a unit trust investment structure is one of the most tax effective ways to invest. The property is held in the unit trust with the total value split into portions, known as ‘units’. These units act similarly to shares (stocks), in that they represent a certain value relevant to the amount of ownership the investor has in the asset.
For example, if a property is worth $10 million and is split into 10 units, then each unit is worth $1 million. If an investor (known as a unit holder) invests $5 million into the unit trust, then they own five units (50 per cent of the property). The income they receive and expenses they pay are proportionate to the number of units they hold out of the number of units on offer in the trust.
Family discretionary trust
A family trust in Australia may be set up to hold the assets owned by a family. If the assets generate an income (i.e. rental income from a real estate investment), then the income is distributed to the beneficiaries of the trust as the trustees (usually the parents) see fit.
Advantages of investing in a trust
Using a trust to invest in property has many advantages:
- Asset protection – Assets which are held in a family or unit trust are protected in the event that creditors make a claim against one of the members of the trust. The assets are not held in a personal name and so cannot be pursued by a creditor.
- Tax advantages – Because the trust itself does not pay tax, the beneficiaries include the income distributions from the trust in their own personal tax returns. The income is then taxed at each beneficiary’s relevant income tax rate.
- Trust deed – Every trust has a trust deed. The trust deed outlines the responsibilities and rules each trust beneficiary must abide by. This simplifies the investment process for each beneficiary, so there are no surprises when, for example, it comes time to sell the property held in the trust.
If you’re an investor, you should seek professional advice before choosing which trust structure to use to invest in real estate. Always consult your accountant or financial planner before making any major financial decision.
For more information on how to invest in commercial real estate, get in touch with Properties & Pathways today. Our investors have seen average annualised returns of 19%*. Find out how you can invest alongside us and secure a stable retirement.
*On completed syndicates.
*Past performance is not indicative of future returns. Any information provided on this website has not considered the objectives, financial situation or needs of any investor; investors should consider whether it is appropriate to them to partake in a commercial property investment prior to investing, in light of their objectives, financial situation or needs. Every investor should obtain and consider the investment’s Information Memorandum before making a decision in relation to the investment.