When considering commercial property investment, investors often ask what’s the difference between owning property through a Trust, as opposed to a company? And what are the tax implications for both?
Commercial Property Investment Through a Trust
Let’s start with Trusts. By putting your assets into a Trust, you don’t own them in your name. The asset, including commercial property, is controlled by the Trustee. The Trustee has the power to decide how the asset is managed, and how any income from the asset is distributed.
Discretionary Trusts, sometimes known as Family Trusts, are the most common type of Trusts used in Australia. From a tax perspective, the main advantage of a Trust is that any income generated by the Trust can be distributed to beneficiaries in a lower tax bracket.
Also, assets and property held in a Family Trust can provide a degree of asset protection. Trusts also have estate planning benefits, and longevity - they’re often used to transfer wealth and property from one generation to the next.
What Are the Disadvantages of a Trust?
There’s a perception at the Australian Taxation Office (ATO) that Trusts have become synonymous with tax avoidance. A special Trusts Taskforce was established some years ago to investigate trust structures, highlighting cases - particularly among high wealth individuals - where Trusts were being used to hide income, conceal who owns assets, and transfer money tax-free between families and business groups.
If you’re thinking of commercial property investment through a Trust, it’s important to remember that setting up a Trust is not free, and there are ongoing legal and accounting fees. Managing a Trust can be complex, and you do need professional advice.
Commercial Property Investment Through a Company
If you are treating property investment like a business, buying commercial property through a company might be for you.
There are several advantages, including asset protection. A company is a separate legal entity, meaning there is separation between the company and its shareholders.
There’s also a company tax rate and, depending on your circumstances, this may result in different tax outcomes.
A company can also be suitable for multiple investors. If you’re buying commercial property with partners, a company structure can make ownership and profit-sharing easier.
The disadvantage of buying commercial property through a company is that there is no capital gains tax discount. Unlike Trusts, companies do not get the CGT discount.
Setting up and maintaining a company also involves legal and accounting fees, annual reporting requirements, and more admin work.
A company structure may be suitable for investors with larger portfolios, depending on their individual circumstances.
Choosing a Structure for Commercial Property Investment
Whatever structure you opt for on your commercial property journey, it’s essential to get the right advice. The Property Law team at GLG Legal can assist when it comes to structuring your assets and considering the legal implications of different ownership structures.
To make an appointment, contact our office today on (07) 3161 9555 or email info@glglegal.com.au.