Part I: Choosing the Right Structure to Purchase your Property

There are some essential issues to consider when determining the right structure.

Some issues to consider when determining the right structure include:

• Asset protection;
• Estate planning;
• Income tax;
• Land tax;
• Capital gains tax;
• Principal place of residence status.

It is recommended that a Purchaser may consider obtaining accounting and financial advice on these items and on the most suitable purchasing entity before buying a property.

It is also highly recommended for all Purchasers to have a lawyer review the proposed Contract of Sale for the property they wish to purchase before the Contract is signed in order to identify any legal issues generally affecting the property before it is too late.

Purchasing Entities

Property can be purchased using a number of different entities.

These include:

Individuals

Most people will purchase their primary home in their own individual name (or names) in order to obtain principal place of residence exemptions (such as land tax and capital gains tax). The main residence tax exemption may also be available if a correctly structured trust is used.

If two or more individuals are purchasing a property, there are different methods of registration. These are joint proprietors (indivisible interests usually for husband and wife) where the property is automatically left to the surviving proprietor in the case of death of one of the proprietors or tenants in common (which means divisible shares, e.g. 50% / 50%) which shares will form part of any deceased estate rather than revert to the survivor (usually in the case of two purchasers who intend to own the land in partnership).

Company

Where the purchasing entity is a company, the company will be registered on title as the proprietor of the land.

Trust

If a property is purchased through a Trust, the legal and beneficial ownership of land are usually different. The Trustee of the Trust will be registered as the legal owner of the land (i.e. the Trustee’s name will be on the Certificate of Title for the land) and the beneficiaries of the Trust own the land beneficially (that is the Trust legal holds the property for the benefit, and on behalf of the beneficiaries of the Trust) in accordance with the relevant provisions of the Trust Deed.

The Land Tax Act contains special rules for Trusts and there are various surcharges that may be applicable. Accordingly, when a property is purchased via a Trust, a special form known as a Notice of Trust Acquisition of an Interest in Land is required so as to alert the State Revenue Office (which amongst other things administers land tax) that a Trust owns the property.

Self Managed Superannuation Fund

A Self Managed Superannuation Fund (SMSF) can also purchase real estate. The Superannuation Industry (Supervision) Act has very specific requirements relating to how property must be purchased through a superannuation fund. If the SMSF has sufficient funds available it can purchase the property outright without borrowings and the Trustee of the fund is registered as the legal proprietor of the property and holds the land as Trustee for and on behalf and for the benefit of the members of the fund, very similar to the trust holding referred to above.

The SMSF can borrow money to purchase the property but requires a ‘bare’ (property) trustee to hold the property as registered proprietor on trust for the Trustee of the SMSF until the loan is repaid in full, after which time the bare trustee must transfer the property to the SMSF Trustee. This is because of the requirement for a limited recourse borrowing arrangement so that the security for the loan extends only to the property for which the funds have been borrowed and to no other property or assets of the SMSF.

If you have any questions relating to purchasing property, please contact Ron Cohen a member of our Property Law team.