Published on 18/09/2008

Unfortunately as accountants, we often find that clients have embarked upon a property transaction that might not provide the optimal outcome. With a wide range of taxes (federal and state based) applying to transactions, it is often thought the accountant can tie up the loose ends once the transaction has been completed.

With a wide range of taxes (federal and state based) applying to transactions, it is often thought the accountant can tie up the loose ends once the transaction has been completed.

In many cases, it would appear the accountant wasn’t involved early enough in the transaction and is left to close the gate after the horse has bolted.

GST

The utilisation of a property can produce various GST outcomes that should be considered before purchasing. For example the acquired property may be:

residential - short term or long term
farming land - either GST free exempt or otherwise
commercial - with or without going concern exemption
developmental - either on long term lease or immediate sale

There are a myriad of circumstances that could apply and it is important in planning that these be understood.

Stamp duty

Although a difficult tax to avoid - it may be possible to reduce this impost. A couple of examples being:

Acquiring property under the going concern exemption or as GST free farm land to avoid stamp duty being levied on GST.
Avoiding double duty by ensuring that the purchasing entity gives flexibility to produce the right ownership outcome. For example, if other parties are to be introduced later will extra stamp duty be payable?
If purchasing as a nominee ensuring that the purchasing structure exists at the time of signing the contract.

Land tax

Land tax is often overlooked when choosing an ownership structure and this can lead to properties being aggregated and subject to a much higher level of tax. The aggregation and grouping rules do vary significantly from state to state and depending on jurisdiction may allow a property to escape being taxed at a higher rate, if acquired in an entity suitably divorced from other properties held. Quite often this tax can influence the viability of a purchase. For instance in South Australia a single property with an unimproved value of $750,000 attracts stamp duty of $5,420 but jumps to $14,960 when aggregated with a similar valued property.

Income tax and capital gains tax

What investment structure you choose for your property will have a significant impact on the outcomes achieved in terms of Income Tax and Capital Gains Tax.

Unit Trust
Discretionary Trust
Company
Partnership
Individual
Joint Venture
Superannuation Fund

There are various advantages and disadvantages for each of the entities and depending on the requirements of the investor, one may be more suitable than another.

Does the entity allow for the flow through of certain capital gains concessions that are likely to be available upon the sale of the property?
Do investors have the ability to access revenue losses in the early stages of the investment when you have negatively geared the property transaction?
Does the entity allow for ownership to pass easily from one generation to another?

It is wise to take these and other matters into consideration before you climb the property ladder. Speaking to your accountant before you proceed will assist in setting up the investment to meet your requirements and possibly provide solutions to problems that you may have overlooked.

John Lampard, Adelaide
jlampard@moorestephens.com.au