[BUYING AND SELLING REAL ESTATE IN AUSTRALIA]
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after May 2012. The main disadvantage with individual ownership is that it does not offer any asset protection. The individual’s creditors will have the right to claim against the personal assets of the owner, including the property. Company A company is a legal entity and has the same rights and obligations as an individual person but is subject to regulation by the Corporations Act 2001 (Cth). This means that a company can incur debt, can sue and be sued and it is taxed as a separate legal entity. One of the advantages of using a company to own the property is that the liability of the owners of the company (i.e., shareholders) to third parties is generally limited to the amount (if any) which is unpaid on their shares. There are public companies and proprietary companies (i.e., private). A proprietary company is simpler and less expensive to administer than a public company. The process for incorporating a proprietary company in Australia is a relatively straightforward process and inexpensive. A company can be registered within a couple of days. One disadvantage with using a company structure is that if the property is sold and a capital gain is made, the company cannot claim the 50% capital gains discount on any resulting capital gain. Trust Under a trust structure, the trustee (who may be an individual or company) holds all income and capital (e.g., the property) on trust for the beneficiaries. The beneficiaries can be individuals, trusts or companies. The trust is created by a document called a trust deed. The trust is governed by the terms of the trust deed, State or Territory legislation and the common law. Whilst the trustee must be a legal entity, the trust is not a legal entity. It is merely a body of rules around ownership, management and
control. The Torrens system of recording ownership of land in Australia struggles to recognize the existence of a trust as only the trustee is registered on title. No particulars of any trust are recorded in the register, which provides anonymity, and also some flexibility. There are three main types of trusts. Discretionary Trust A discretionary trust means that the trustee has the discretion to distribute the income and capital of the trust to a range of beneficiaries. Discretionary trusts (also known as a family trust) commonly have specified beneficiaries, as well as classes of general beneficiaries (which may include the family members of a named beneficiary and associated companies and trusts). Under a discretionary trust, the trustee can but is not obliged to make distributions, which consider the beneficiaries’ individual tax circumstances. A discretionary trust may also provide a reasonable level of asset protection as the beneficiaries of the trust are generally not entitled to income or capital until the trustee decides to make the distribution. Another benefit with using a trust is that a trust can take advantage of the 50% capital gains tax discount if the trust held the property for at least 12 months before it is sold, and the capital gain is distributed to an individual or another trust. Unit Trust Under a unit trust, the beneficiaries (which are referred to as unit holders) subscribe for units in the trust. Each unitholder has a fixed interest in the capital and income of the trust that corresponds with the proportion of units they hold. Units can be bought and sold. Unit trusts have the benefit of conferring a clearly defined entitlement and are considered to be more appropriate than a discretionary trust for non- family ventures.
ILN Real Estate Group – Buying and Selling Real Estate Series
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