Best way to structure purchase for CGT?


Question: I'm new to the property investing game. I’m looking to purchase an average three-bedroom house in the southern suburbs of Sydney, with a view to renovating (cosmetic) and selling it two or three months down the track for a profit. I’d like to know if CGT is calculated at different tax rates for individuals and corporations. If so, what is the best way to structure the purchase?   

Answer: There are numerous taxation and commercial advantages and disadvantages to owning property outright, or in a partnership, company or trust structure. As this is a rather complex decision to make, it’s best to seek professional advice on which legal structure is suitable to your particular circumstances. With respect to the taxation issues; owning property under a particular legal structure will affect:  

  • How you’re taxed (Companies and individuals pay different rates of tax )
  • Your capacity to utilise the proposed $18,200 tax-free threshold the federal government plans to introduce on 1 July 2012 (Companies can’t access this threshold)
  • Your capacity to split rental income and allowable deductions with family members (You can’t do this if you own the property outright)
  • Your capacity to access losses if you’re negative gearing (A company or family trust can’t distribute losses)
  • Your capacity to claim a 50% CGT discount if you sell the property after you had owned it for more than 12 months (You can’t claim a 50% CGT discount in a company structure). Incidentally, only investors can claim this concession. This is not available if you carry on a business, such as renovating and selling property.

If you’re planning on buying a property with a view to renovating (cosmetic) and selling it two or three months down the track for a profit, the entire profit you make on sale is liable to tax.

 Answer provided by Jimmy B Prince

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