Structuring property ownership

Question from Peter updated on 1st December 2011:

My partner and I are looking at investing into the property market and want an entity to manage it. We are not sure what entity structure is most suitable - perhaps a Trust or a LTC? Which option gives the best asset protection, loss offsetting options, tax minimisation and/or minimises capital gains tax or disposal of assets tax?

Our expert Mark Withers responded:

For most people the choice of entity narrows down to a trust, LTC (lool through company) or personal ownership. A trust is the only entity that provides asset protection and you can now gift into it free of gift duty. The big drawback with a trust is that it can't distribute losses so losses are essentially ring fenced with it. A LTC provides limited liability rotection but is transparent for tax purposes i.e. profits and losses are accounted for directly by shareholders. The LTC does have a loss limitation rule that prevents losses greater to the money you have invested in the company from being flowed to shareholders. Personal ownership in a partnership has the benefit of simplicity, losses and profits are flowed to the partners directly. Partners are jointly and seperately liable for partnership debts though so there is no asset protection with a simple partnership. In making your choice you should budget the trading outcome from the investment to determine if you have a profit or a loss, this may start to narrow down the options. NZ doesn't have a capital gains tax yet.

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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