Arnold
CibbuanoTax Deduction Strategies – Company Title
June 30th 2006 01:57
In Australia the maximum company tax rate is 42% while the maximum personal tax rate is 47% so for those that are in a higher tax bracket, the use of a company structure to purchase property may be a financially better option. Rent is the major income stream from an investment property and it is subject to taxes. In single, joint or trust titled investment properties the income from the property my be distributed among the beneficiaries which is when the government enforces its slice of the pie with income taxes. One of the advantages with a company structure is that companies do not pay income tax on undistributed profits. Unfortunately, the company structure does not allow much flexibility in the way and distributed profits are shared amongst the shareholders and beneficiaries.
Say you set up a family company to purchase a property. At the time of establishing the company, each party is allocated a percentage of the company – a percentile shareholding. This shareholding will dictate what percentage of the distributed profits will go to each shareholder. So, as circumstances change and members of the company shift through different tax brackets, it is not possible to redirect profit distribution to those in a lower tax bracket.
This is one area where a family beneficiary trust structure has an edge over the company model. With a trust, the income from the property can be distributed amongst all the beneficiaries of the trust and the proportion of distribution can be varied to provide the greatest tax benefits for any given financial year. This means that as circumstances for the members of the trust change, there is flexibility to always get the lowest income taxation rate amongst the beneficiaries. Trusts are well suit to large growing families where incomes can be split among members and the flexibility is there to adjust for changing conditions. The company structure is a good model for a matured family, partnership or even those planning towards retirement. The company structure can work well provided you are confident that there will remain a stable set of circumstances for all parties involved. This means that the tailor company set up will be matched to the best taxation strategy in terms of shareholdings and distributions.
Another advantage of the company structure is that it isolates your asset from your personal holdings. This means that should some legal matter arise with your asset, claims can only be made through the company, and your private holdings are legally protected.
No matter how you decide to purchase a property it is always a good idea to seek further advice. A professional accountant or qualified and licensed financial planner should be consulted if only to ensure the appropriate structure is used for now and the future.
Say you set up a family company to purchase a property. At the time of establishing the company, each party is allocated a percentage of the company – a percentile shareholding. This shareholding will dictate what percentage of the distributed profits will go to each shareholder. So, as circumstances change and members of the company shift through different tax brackets, it is not possible to redirect profit distribution to those in a lower tax bracket.
This is one area where a family beneficiary trust structure has an edge over the company model. With a trust, the income from the property can be distributed amongst all the beneficiaries of the trust and the proportion of distribution can be varied to provide the greatest tax benefits for any given financial year. This means that as circumstances for the members of the trust change, there is flexibility to always get the lowest income taxation rate amongst the beneficiaries. Trusts are well suit to large growing families where incomes can be split among members and the flexibility is there to adjust for changing conditions. The company structure is a good model for a matured family, partnership or even those planning towards retirement. The company structure can work well provided you are confident that there will remain a stable set of circumstances for all parties involved. This means that the tailor company set up will be matched to the best taxation strategy in terms of shareholdings and distributions.
Another advantage of the company structure is that it isolates your asset from your personal holdings. This means that should some legal matter arise with your asset, claims can only be made through the company, and your private holdings are legally protected.
No matter how you decide to purchase a property it is always a good idea to seek further advice. A professional accountant or qualified and licensed financial planner should be consulted if only to ensure the appropriate structure is used for now and the future.
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