ILN: BUYING AND SELLING REAL ESTATE - AN INTERNATIONAL GUIDE

[BUYING AND SELLING REAL ESTATE IN AUSTRALIA]

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invest in Australian land or companies should seek legal advice regarding the relevant FIRB approvals which must be obtained. The overarching policy objective behind the FIRB’s regulation of foreign investment into Australian companies and businesses is to ensure that any proposed foreign acquisitions are not contrary to Australia’s national interest. OWNERSHIP STRUCTURE When looking to acquire property in Australia, it is important to consider the most appropriate legal structure in which to own the property. The key issues will be asset protection, taxation issues, stamp duty, land tax, estate planning, complexity, and cost. It is important that specific legal and accounting advice is obtained before deciding upon what is the most appropriate structure for ownership of the property. The most common structures are individual, company, trust, partnership, and joint venture. It is also possible to buy an interest in a property by buying shares or units in the ownership structure. Individual Ownership by an individual is the simplest option. It means that all debts and liabilities attached to the property will be the responsibility of the individual. The individual will have sole control of the property. An advantage of an individual is that if the property is held as an investment and it is subsequently sold and a capital gain is made, the individual will be able to take advantage of the 50% capital gains discount. The capital gains tax is a federal tax imposed on the capital gains realised from the sale of assets. To take advantage of the capital gains discount, the property must be held by the individual for 12 months or more. If the property is held by a foreign resident individual, the 50% discount is removed or reduced on capital gains made 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

ILN Real Estate Group – Buying and Selling Real Estate Series

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