{"id":9727,"date":"2016-11-03T01:00:25","date_gmt":"2016-11-02T14:00:25","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=9727"},"modified":"2016-11-03T01:00:25","modified_gmt":"2016-11-02T14:00:25","slug":"buying-in-the-correct-entity-listener-question-ed-chan","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/buying-in-the-correct-entity-listener-question-ed-chan\/","title":{"rendered":"Buying in the correct entity (Listener Question) – Ed Chan"},"content":{"rendered":"

 
\nEd Chan<\/strong> from Chan & Naylor\u00a0returns to answer a question from Carol about what entity she should use to buy a property.<\/p>\n

<\/h4>\n

Transcript:<\/strong><\/h4>\n

Kevin:<\/b>\u00a0 Joining us, once again, to answer another one of your questions, Ed Chan from Chan & Naylor.
\nHi, Ed. Nice to have you on the show again.
\nEd:<\/b>\u00a0 Good day, Kevin. It\u2019s nice to be here.
\nKevin:<\/b>\u00a0 We have to answer a question this time from Victoria, from Carol. I\u2019ll read it in just a moment, but just a reminder: we love to get your questions. Any questions about anything \u2013 whether it\u2019s tax, finance, buying a property, what you should be buying, what you should be considering \u2013 our experts are always ready to answer your calls.
\nI want to mention, too, that we can\u2019t always answer every question in our shows, so if we can\u2019t answer it in a show, we\u2019ll certainly get your question directly anyway. Quite often, if one person has a question in, I find many other people have similar questions, so we try and cover as much territory as we can.
\nOkay, let\u2019s get to Carol\u2019s question. What things should I consider when I decide which entity to use to buy my next investment property? That\u2019s a great question, Carol, and Ed, I\u2019m sure you\u2019d agree.
\nEd:<\/b>\u00a0 Yes. Where do I start?
\nKevin:<\/b>\u00a0 Exactly.
\nEd:<\/b>\u00a0 Carol, the biggest challenge for an accountant, I guess, \u00a0is that one of your clients comes to see you on a Monday and says, \u201cGuess what, Ed? I bought a property on the weekend.\u201d My initial response, after the shock is \u201cWhose name did you buy it in?\u201d Then, of course, there\u2019s a whole lot of things that happen after that, whether it\u2019s trying to fix things.
\nBut the biggest problem is that once you\u2019ve put your name or a name on the contract, it\u2019s very difficult to change. The vendor may not agree to change it, and it creates a whole lot of problems.
\nThe best thing for anyone when they\u2019re considering buying a property is to see your advisor, your accountant, before you buy the property not after you\u2019ve bought it. I was just going to make that fact up front.
\nThen there are so many things to consider. The first thing is do you have an asset protection problem? If you\u2019re a person in a high-risk occupation, like a doctor, you generally shouldn\u2019t have any assets in your name. Or if you run a business and you\u2019re a director in that company, then directors generally get sued, so you shouldn\u2019t have the property in your name. And other situations when it\u2019s held in your name could open you up to some sort of litigation. If you had four or five properties in your name, then if a tenant sued you, then they have exposure to all of your other properties, as well.
\nThat\u2019s the first consideration \u2013 asset protection \u2013 and you really need to sit down with someone to consider that. The second big item is tax. When you buy a property, there are all sorts of different taxes involved. I\u2019ll just quickly go through some of them.
\nThere\u2019s income tax. There\u2019s capital gains tax. There\u2019s land tax. There\u2019s stamp duty on purchasing a property or transferring a property. And, of course, if you\u2019re buying a new property, there\u2019s GST to consider, as well.
\nLet\u2019s just start off at the top, and I\u2019ll go through each of them very quickly so that you can see how complicated it is. It\u2019s not simply just buying a property. If you\u2019re buying a home, you can just buy the home in your name, but when it\u2019s an investment property, you have to consider these things.
\nLet\u2019s take income tax right at the top. If you go down to your local accountant, he\u2019d look at your income and your income tax, and if it\u2019s a husband and wife, if one person is earning more income than the other, then generally, if the property is negatively geared, your accountant would advise you to buy in the name of the person who is paying the highest tax.
\nThe reason for that is that you\u2019ll get a larger refund when you do your tax return than if you put it in the person\u2019s name who is on the lower tax, because you only get back the tax that you pay. That makes sense.
\nThe problem with that strategy is that a lot of properties start off as being negatively geared. Negative gearing is when your outgoings are more than our income, and you can then claim the shortfall as a tax deduction against your income and it get you a refund. But a lot of the properties after about seven or eight years become positively geared.
\nWhen it becomes positively geared, the net rental is then taxed in the person\u2019s name who is paying the highest tax. Of course, then that becomes a problem, because you have a spouse who is paying a lot less tax and you have this property in your name that you end up paying a lot of tax on.
\nYou might say, \u201cOkay, I\u2019ll move it to my spouse who is on the lower tax bracket,\u201d but then when you do that, you incur capital gains tax and a stamp duty to move it across. It\u2019s very important that we structure it correctly upfront so that you don\u2019t fall into these particular problems.
\nIf you then went back to the accountant and he said, \u201cJust buy another property,\u201d you might have several your name and then you end up with a land tax problem, because land tax is calculated based on the aggregation of all of your land together. It\u2019s not property by property, but they pool the whole lot together, so then you end up with a land tax problem.
\nYou can see that you really need to structure it correctly for your particular circumstances, and unless someone sits down who is experienced in this space and looks through your circumstances to best determine how you should structure it, then it\u2019s best not to just put your name on the contract because that\u2019s the first thing that came up in your mind.
\nKevin:<\/b>\u00a0 That\u2019s right, because right at the start, too, you said how difficult it is to change after the event. Another cautionary note is that quite often, it can be deemed as a double transaction if you do try to change the name of the purchaser after the contract has been done.
\nLots of reasons why you\u2019d want to consult an expert. Our advice is that you should consult Chan & Naylor. They\u2019re our supporters. We have a featured channel on our website, a lot more information about them under the direct link there to get you through to Ed and the team.
\nEd Chan is my guest from Chan & Naylor. Ed, thanks again for your time and your very valuable insight. Thank you, mate.
\nEd:<\/b>\u00a0 Thanks for having me, Kevin, and thanks, Carol, for your great question.<\/p>\n","protected":false},"excerpt":{"rendered":"

  Ed Chan from Chan & Naylor\u00a0returns to answer a question from Carol about what entity she should use to buy a property. Transcript: Kevin:\u00a0 Joining us, once again, to answer another one of your questions, Ed Chan from Chan & Naylor. Hi, Ed. Nice…<\/p>\n","protected":false},"author":176692471,"featured_media":9729,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[34,10,11,13,36,17,25],"tags":[101],"class_list":["post-9727","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment-topic","category-property-investment","category-sponsored-channels","tag-podcast"],"yoast_head":"\nBuying in the correct entity (Listener Question) - Ed Chan - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/buying-in-the-correct-entity-listener-question-ed-chan\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Buying in the correct entity (Listener Question) - Ed Chan - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"  Ed Chan from Chan & Naylor\u00a0returns to answer a question from Carol about what entity she should use to buy a property. 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