Article by Lea Williams
as featured in the Farm Weekly issue 20 January 2022
With farmland values booming, competition high for farming property, we are seeing a trend towards residential investment property purchases. The common question from our growers is, “what name do we buy the property in?” This is not a simple question.
Issues you may consider:
1. Asset protection – consider the risks in your business and family structure. We recommend avoiding your trading entity whilst ensuring a finance structure which has minimal impact on the business.
2. Income tax – will the property be rented? With interest rates at all-time lows and rental yields being relatively high, negative gearing may not be a realistic outcome. Hence consider the tax rate for the owner(s).
3. Capital gains tax – hopefully, the property will grow in value over time. A disposal will likely result in capital gains tax consequences, so consideration should be made as to the owner’s tax rates and access to discounts and/or capital losses.
4. Main residence – if a property is a main residence, it may be eligible for capital gains tax and land tax exemptions, and potentially even first homeowner’s concessions. The Tax Office has strict guidelines on what makes a property a main residence, and you can only have one per couple at one time.
5. Land tax – while farmland and a main residence are exempt from land tax, investment properties are not. Having multiple investment properties in the same ownership structure will increase the rate of tax you pay.
6. Succession planning – will the property be transferred to the next generation as part of a succession plan? A trust ownership structure may allow a transfer to the next generation free of considerable transaction costs.
7. Self-managed superfund – in most cases a superfund is an unlikely owner of an investment property as the property cannot be used or rented to a family member.
8. Company – any personal use of the property in a company by its shareholders or relatives, can create Fringe Benefits Tax issues which may unnecessarily complicate your tax affairs.
9. Estate planning – Where the property forms part of your estate, your Wills may also need to be adjusted.
With many pros and cons of different ownership structures, you need to work out what is best for you, based on your circumstances now, and importantly in the future. The name you put on the offer and acceptance contract will lock you into ownership, so it is best to speak to your accountant before filling in the paperwork.
To discuss this article further, we encourage you to contact Lea Williams on (08) 9853 9300, or your Byfields accountant.
Disclaimer: This content provides general information only, current at the time of production. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice