How should I structure my property rentals in terms of taxation?

Question from campbell price updated on 22nd January 2008:

I have a small property development company which ranges from trading to development under the same roof. I have now purchased a rental property and plan on building a portfolio of rentals with the intention of keeping long term to create cash flow in the future leverage. Do I keep these rentals under the same roof or create a new structure? Could there be any benefits? thank you regards campbell

Our expert responded:

The act of buying property with the intention of on-selling it is, as you are aware, a taxable activity whereby you must pay tax on your profits. Any entity in which this sort of activity is conducted will have to treat all property in the same way. Buy and hold rental properties, on the other hand, generally give rise to a capital gain which, because the property was bought with the intention of holding it for the long-term, is not taxed. By that token, buy and hold property should absolutely be kept in a separate entity, and assuming you have the right structures in place to prevent being tainted, it is most likely that a trust will be the best option for you. Be sure to take advice from your accountant or structure specialist. The cost of not doing so could be extremely costly in the future if you have to pay tax on your capital gains on your rental properties.

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