Investment Structures

Once a decision has been made to buy an investment, it is important to consider the best investment structure to use.   An investment structure refers to the way investments are legally owned.  Many people simply purchase assets in their own name or joint names, when other ownership structures may be more suitable.

​Taxation issues alone warrant a close investigation of investment structures, as they have a direct impact on taxation and therefore a direct impact on the investment return you receive. However, there are other reasons to consider structures including, Succession Planning, Asset Protection and Simplicity.

Important considerations

There is no 'right' structure for all investors because each investor's circumstances are different. When reviewing the basic investment structures below, consider the following:

• Who should receive the income, both now and in the future?
• Who should receive the capital, both now and in the future?
• Is there a need for investment assets to be protected against potential future creditors?
• Are there are special family considerations related to who should own assets or receive income, both now and in the future?
• What level of flexibility is needed as far as debt and leverage is concerned?
• What are the tax implications of each structure?
• What estate planning issues need to be addressed?

There are four basic types of investment structure, each with its own advantages and disadvantages. As you can see from the above list, it is not just taxation that should be considered when choosing an appropriate structure.

Individuals

The most common and simplest investment vehicle is a person holding investments in their own name. Investments in an individual name can be:

• Easy to set up and manage as income and capital gains are included in the individual's own tax returns.
• Easier to administer as there is much less paperwork in comparison to other structures.
• Much less expensive.​

However, assets held by an individual offer no flexibility with the distribution of income. Individuals in high risk occupations could be sued and their assets exposed to risk from creditors. Negatively geared assets held by an individual will eventually become positively geared, resulting in an increased tax liability over time.  The same advantages and disadvantages apply to assets held jointly.

Companies

Companies are most often used as a structure for business rather than for investments. The main benefit is that the tax rate on profits is 30% (28.5% for small business) and they offer some protection for shareholders if the business fails or is sued.

However, there are also disadvantages, particularly for investments as losses can only be offset against future income and a company is not able to obtain the benefit of any capital gains discount on the sale of investments.

The costs to set up can be high and there is a requirement for a separate set of accounts and tax return each year.  A company can distribute profit by paying a dividend, but there is limited flexibility when paying these.
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Companies do have some advantages though and used appropriately in an overall investment strategy can work well for some investors.

Trusts

​A trust can distribute income and capital gains in accordance with the trust deed, however, it cannot distribute losses.  Losses can be carried forward to be offset against future income.  A trust can also retain income, and if that income is taxable, then tax is payable at the top marginal rate plus the Medicary levy.
Note that Centrelink may include the income and assets of a trust when working out your social security payments if you are a controller of a trust.  

Superannuation funds

A superannuation fund is just a structure in which investments are held.

All superannuation funds are a type of trust with special rules to ensure that they primarily provide retirement benefits (either pensions or lump sums). The reasons for keeping investments in a superannuation fund are because they:

• provide a tax-advantaged environment. In the Accumulation phase, the tax rate is a maximum of 15%, in the Pension phase, no tax is payable. 
• can be an effective estate planning vehicle.

The main disadvantages are:

• it is generally not possible to access your money until you retire from work, or after 55 years of age with a transitional pension.

This means that superannuation may not always be the best way to hold your investments.

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IMPORTANT - This information is based on generally available information and is not intended to provide you with specific financial, legal or taxation advice or take into account your objectives, financial situation or needs. You should consider obtaining legal, tax or accounting advice on whether this information is suitable for your circumstances. Any tax estimates provided in this publication are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.