Correct purchase structure

Our Experts Answer:

You are right in that any rental income you receive on the second dwelling is taxable, and any expenses incurred in deriving that income are deductible. That includes a share of the interest payments that you will make due to borrowing money to buy this property and a share of the rates and insurance.

The more interesting question here is the appropriate structure for this purchase. In general, we like the private homes of our clients to be held in trust ownership. We see this as providing the best structure, generally speaking, for asset protection and long-term estate planning purposes. However, we like rental properties to be held in a company because it provides the best range of flexibilities for tax and legal purposes.

This property is a mix of both, which means it may be appropriate for the ownership to be split between a trust and a company in a tenants-in-common structure. This allows you to isolate the rental activity and keep it away from the trust, which we see as useful for preserving the trust as a low risk entity. It also means that you can get your bank debt arranged so that you maximise the amount of interest able to be claimed as deductible.

This is something that expert asset planners like GRA can help you with. I suggest you look to get specialist advice before proceeding with settlement of this property to get the structure right.