LAQC or Trust for tax benefits?

Question from Susanah updated on 11th April 2007:

I have recently started a small business as a sole trader and my partner and I are wanting to start building our property portfolio. We currently have one investment property but before we buy our next was wondering if we should set ourselves up as a LAQC Company or use a Trust in order to obtain the maximum tax benefits? My partner works full time and is currently on 35K and I expect to be putting most of my profits back into the business. In our current situation which of these two investment vehicles would be most suitable?

Our expert responded:

The first thing I would say is that tax entity structuring is an art, not a science, and it should always be based on where you want to be, not where you are right now. So, think about where you want to be in five years, and on the basis of the answer to that question, you can get some advice on how to structure your investments.

On a more general note, I would advise that you consider setting up your business in a company and get the protection of limited liability that comes from a company and protecting your other assets. That's opposed to operating as a sole trader where you have unlimited liability and there is no way to protect other assets that you own, such as your home.

The second area to look at is your family home and whether or not you should consider putting that into a family trust. This becomes more important where you have a business as a result of the liability issues that can arise out of a business.

The third area to consider is with your existing investment property - how do you currently own this? I suspect you (and perhaps your partner) own this in yor personal names which does not give any ability to stream the losses to the higher income earner. Whether you use an LAQC or a trust for subsequent investment property purchases will depend on what your long term plans are, and whether tax or asset protection is more important to you. It is important that you take advice from a tax structuring expert who will be able to advise you based on your particular circumstances and the financial goals you wish to achieve.

Property Tax:
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Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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