The way you own a property can significantly affect your tax position, asset protection, and long-term wealth strategy. Unfortunately, many people only think about ownership structure after purchasing a property, when making changes can be much more complicated and costly.
When Is It Worth Reviewing Your Structure?
It may be worth reviewing your property structure when:
- Your family or financial circumstances have changed
- The current ownership no longer provides an appropriate tax outcome
- Your asset protection risks have increased
- A property changes from a home to an investment
- You are expanding your property portfolio
- Your estate or succession planning needs have changed
Restructuring Is Not Just Changing a Name on a Title
Transferring an existing property can potentially result in Capital Gains Tax (CGT), stamp duty, legal fees, and refinancing costs. However, focusing only on the upfront cost can also be a mistake. The potential tax and wealth benefits need to be considered over the entire period you expect to hold the property.
A Real Client Example
A few years ago, we helped a couple restructure the ownership of their properties. For one property, our modelling indicated that the ongoing tax savings could recover the initial restructuring costs within approximately four years. From year five onwards, the ongoing savings represented a net benefit. The new structure could also provide further tax benefits when the property is eventually sold.
We sometimes see this overlooked in property tax advice — clients may be advised against restructuring purely because of the immediate CGT and stamp duty costs, without comparing those costs against the potential tax savings over the next 10, 20, or even 30 years.
The $7,000 Construction Loan Interest Case
In another case, we reviewed a client’s previous tax return and noticed their former accountant had not claimed interest relating to a construction loan for an investment property.
A common misunderstanding is that if a property is still under construction and has not started generating rental income, none of the associated interest can be deductible. In certain circumstances, interest on money borrowed to construct an investment property intended to produce assessable rental income may be deductible during the construction period.
After reviewing the client’s circumstances, we identified interest expenses that had been missed — resulting in approximately $7,000 in additional tax savings.
The Key Takeaway
Before restructuring — or purchasing your next property — consider the initial costs, future tax savings, CGT position, asset protection, financing, and long-term wealth objectives together. Sometimes paying a cost today produces substantially greater benefits over the life of the investment.
To discuss your property structure, contact us on 1300 TAX SAV (1300 829 728) or book a consultation here. Initial consultations for new clients are complimentary.
General information only. Tax outcomes depend on individual circumstances.
