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Who should own the property?


Personal ownership

Benefits:

  • Losses can be offset against personal income.




Disadvantages:

  • No asset protection.
  • Profits are taxed at your tax rates.
  • You cannot income split






Recommendations:

  • Investment properties should never be owned personally.
  • The preferred options are a trust for homes and positively geared Investment Properties, a Look Through Company for substantially negatively geared investment properties if you are employed by others, and a separate property company if you are self employed (using the grouping provisions of the Income Tax Act). You need professional advice upon which of these options is suitable for you.


Further information:






Partnership ownership

Benefits:

  • The same as for personal ownership




Disadvantages:

  • The same as for personal ownership




Company ownership

Benefits:

  • Tax deferment as company's tax in New Zealand is 28%
  • May be useful if there are multiple owners

Disadvantages:

  • No income splitting possibilities
  • You are taxed at your tax rate on profits when they are paid out as dividends
  • No asset protection as you own it
  • Expensive to wind up


Recommendations:

  • Never use a company (other than a QC for loss making rental properties) to own investment properties unless you are not self employed.
  • If you are self employed consider using a property owning company to own loss making properties (with the shares in your business company and property owned by the same trust - using the grouping provisions in the Income Tax Act). Professional advice should be obtained by you.

Further information:




Look through company (LTC) ownership

Benefits:

  • Tax losses offset against shareholders income in some cases
  • Shares can be transferred to a trust when it breaks even without selling the property (so long as this is not done for taxation reasons).

Disadvantages:

  • Profits taxed as your income
  • No asset protection as you own it personally
  • Shareholders will be personally liable for any income tax not paid by the company


Recommendations:

  • If you are employed by others consider for loss making rental properties when the loss is high and the trust has no other income to offset the loss; and where there is multiple ownership.
  • You will not normally use a LTC if you are self employed.

Further information:



 
 

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