Work your investment structures harder: Centric Wealth

There are five common reasons for using different investment structures, however investors must ensure they ar eusing the correct structure or risk their assets not performing as required, according to Centric Wealth.

Centric Wealth's Adam Pearsall said that all investors should be regularly reviewing their investment structures to make sure they are maximising their assets.

He noted that the five reasons for using different investment structures are also follows:

- Tax effectiveness

- Protection of assets

- Estate planning

- Risk mitigation

- Delegation of control

"The majority of investors use a combination of investment structures to meet their particular needs. It is very rare for an investor to have only one investment structure for all of their assets," Pearsall said.

Your property investment structures should be looked at in terms of both your current financial and family circumstances, as well as what may change over time.

“Broadly speaking there are four main types of investment structures including personal, company, trust, and superannuation ownership. Depending on your particular circumstances, one structure may be more suitable than another,” he said. 

“The right investment structure is an essential part of the financial planning process because it dictates how your assets work for you, now and in the future."

Whenever an event in your life occurs, such as financial or family changes perhaps due to death, inheritance, divorce or similar, you will want to review your structures.

Personal ownership

The simplest and lowest cost investment structure is personal ownership, which Pearsall said is best for those on lower marginal tax rates who do not predict their income rising in the near future.

“This investment structure is also best suited to those investors who want unrestrictive access to their income and capital,” he said.

Company structure

Company ownership was said to be one of the structures with the highest set-up and compliance costs, and is regularly used for business rather than investments. For investors on higher tax rates or who are the beneficiaries of a discretionary family trust, this may be worthwhile considering.

“One of the main advantages of investing via a company is that income and capital gains derived by a company are taxed at a flat rate of 30 per cent which is significantly less than the maximum marginal personal tax rate plus medicare levy of 46.5 per cent,” said Pearsall. 

Asset protection was listed as another advantage, due to the limited liability of a company. Remember that business and personal investments should not be owned under the same structure.

Trusts

Looking at trusts, discretionary and fixed trusts are the most popular due to asset protection, tax-effectiveness and estate planning benefits, or testamentary trusts, he said.

Assets held in a trust do not form part of a person's will, and continue to be owned by the trust in the event of death.

“Like company ownership, trusts can be relatively complicated to set-up and maintain,” said Pearsall. 

“They also have higher set-up and compliance costs. We generally recommend trusts for clients who want to maintain control of their investments, add a layer of asset protection and tax-effectively stream income or capital gains.”

Superannuation

While many see this as a type of investment, rather than a structure, Pearsall explains that the two main uses are the accumulation of assets in a low-tax environment for retirement benefits and the holding of assets in what is, potentially, a zero-tax environment.

"Once fund members start receiving a pension, they are likely to pay no tax on either income or capital gains," he said.

“Superannuation as an investment structure is governed by a number of strict rules, which change regularly. These rules affect the amount of money an investor can contribute, how contributions, income and lump sum withdrawals are taxed, when investors can access their funds, and when death benefits are paid out and to whom.”