How to choose the right investment vehicle for your commercial property investment

Before you purchase your next commercial property, you need to take some advice on which purchasing vehicle is right for you — because it's definitely not “one size fits all”.

The Australian Tax Office is quite happy for you to arrange your affairs so as to minimise the tax you pay. In other words, it is quite legal for you to avoid tax — you simply cannot evade it.

Income tax and capital gains tax are clearly two important issues to consider when arranging your property investments, and so, too, is GST.

But tax planning is not the only factor to consider. There are other commercial concerns that you should also address, depending on your circumstances. Apart from ensuring your overall flexibility, you also need to be able to:

• admit partners down the track;
• allow one or more individuals to sell out when desired;
• cope with future tax changes;
• handle a marriage breakdown;
• cope with the death of one or more individuals;
• pass on the investments to future generations; and
• take advantage of the new superannuation provisions.

If you haven't already done so, you need to give careful thought to these matters in choosing the best investment "vehicle" for your next purchase.

From a tax viewpoint, which vehicle is best for you?

The simplest way to answer this question is to fully review the advantages and disadvantages of the commonly recommended tax structures and decide which best suit your circumstances. Those possible structures (investment vehicles) include:

• Company
• Fixed trust (commonly referred to as a unit trust)
• Partnership, or joint venture

Depending upon your particular situation, there will be one vehicle better suited to your needs. And it is vital for you to determine that before you finalise the contract of sale for your next purchase.

You may prefer to obtain advice from your accountant. Alternatively, most competent legal firms will have a taxation division, which can provide you with that advice.

And this is always my preference — because there is then less chance of something being able to "slip through the cracks".

Generally, the discussion about the most appropriate investment vehicle takes only about  15 to 20 minutes with a tax adviser.

However, the real advantage comes from being able to dovetail the formation of that vehicle with the conveyancing aspects of the contract itself — because everything is now happening in-house.

Bottom line: You are able to leave that initial meeting with the comfort of knowing the transaction will now be documented in the most tax-effective manner.

Plus, it will also provide you with the greatest flexibility down the track; and you now have one fewer thing to follow up in the process.

Chris Lang is an advisor to commercial property investors and gives keynote speeches and regular seminars on the best way to invest in commercial property. He maintains a blog, his-best.biz, which he updates regularly about the best way to get the most out of your commercial property investment.