With the property market booming across Perth the tax structuring and asset protection for property investment is becoming a significant focus. And while no “one size fits all” approach ever works with tax advisory, the importance and benefits of a unit trust to acquire and hold residential and commercial property is increasingly important.
A unit trust offers family flexibility
If the land is held in the unit trust you might find that the transfer duty is lower. If the unit trust has a land value of under $2m it is not a “land rich” entity. So transfer duty will not apply if part of the units are transferred among the family.
So if a child wanted to purchase, say 50% of an investment property in say, Northbridge, from their parents they could acquire 50% of the units in the unit trust and do so free of transfer duty.
If you compare the same transaction done directly through the property ownership then stamp duty would apply. And as helping the next generation purchase a home is important – a unit trust might be the vehicle to offer that.
A unit trust offers future SMSF options
An SMSF cannot purchase residential real estate from a family member. However if the same property is held in a “non-geared unit trust” the family has the option of later on selling the units in the unit trust (with the trust owning the residential property) to the SMSF.
Arranging for a unit trust to qualify as a “non-geared unit trust” for SMSF purposes is administratively strict and requires (among others) that:
- The trust has no borrowings.
- Has no other investments in other entities.
- Does not have its assets subject to a charge from a bank etc.
- Does not lease the property to a family member or associate (business real property is an exception).
The same exemption for lower value property held in a unit trust discussed above will also apply to the sale of units to a SMSF. And depending on how the SMSF values part of a property opportunity can exist on the transfer to inject a higher perceived wealth.
A unit trust might save on land tax
If you own land in a unit trust that unit trust will attract its own land tax threshold for land tax. And as land tax is at marginal rates the reduction in the land tax can be significant.
As an example if a person held $10m of land they would incur a yearly land tax bill of $180,130. However if they held $9m in land, and another $1m in a unit trust, they would incur $161,460 – a saving of $18,670.
The same saving benefit could also arise from other holding structures.
A unit trust enjoys tax concessions
If the unit trust sells real estate: the unit trust can enjoy those tax concessions. So the 50% CGT discount from the sale of real estate can be enjoyed in a unit trust (compared to say a company that will not offer this concession).
A unit trust offers tailored loan flexibility
If different family members are investing into a unit trust they can fund their purchases at a different level personally. This can allow the deposit from a property to be invested into the unit trust by a person on a low income and the high-income earner to borrow to purchase their shares and enjoy tax deductions.
As a practice we are only focussed on families in business. And with property investing as a cornerstone of wealth creation for families our insight into tax and legal structures with a property insight gives us a strategic insight into planning and structuring the family wealth above and beyond that offered by most other firms. Our unique “family GAP strategy” can identify cashflow, tax and structuring strategies to help families generate effective tax outcomes that fit within the overall business and investment strategy.
Contact us today to see how we can help.