How should I structure my assets?

Question from V Knight updated on 2nd July 2010:

I am single and want to build a property investment portfolio. I am a first home buyer with no real estates. I also look into setting up an office and beauty therapy salon in a city apartment and use it as an office and for business operations (either rent a space or buy one).

I want to seek for the best structure to own the property portfolio. Should I set up a company to manage the rental properties investment? Or under a trust for asset protection purposes? Or simply own it under my personal name?

The aim is to minimise tax legitimately, minimise compliance costs and time, asset protection (say if in the near future he gets into a relationship), and flexibility (may potential go for work OE, leaving the rental property in NZ during OE period and hope for capital gain)

Types of current incomes are:
- Salary (at 33% bracket at the moment but may hit 38% bracket in 2011 income tax year)
- NZ Dividends from share investments (fully imputed)
- PIE at PIR 30%

Our expert Mark Withers responded:

The only structure that will offer you asset protection is a trust, and even then, only to the extent that you are able to grow your trust capital by gifting. It is essential that you get a contracting out agreement with any partner to ensure you have acknowledged your respective separate property.

After the budget, LAQC's are now to be taxed as look through entities similar to limited partnerships. This places some limitations on the flow through of losses but may well still be a viable option. Compliance costs are likely to be greater than if you simply held the property in your personal name. This is the simpliest and easiest and still allows tax losses to be claimed. Because it offers no asset protection the contacting out agreement with a future partner becomes very important though. 

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.


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