Types of Investment Structures

Before you purchase an asset it is important to consider the most appropriate investment structure to use.

An investment structure refers to how your investments are legally owned. Legal entities can be individuals, partnerships, companies or trusts.

There is no 'right' structure for all investors because each investor's circumstances are different.

It is important to take the time to review all of the investment structure options before investing.  Getting it right at the beginning can have significant long term benefits, and getting it wrong can be expensive to sort out.

Take the time to do your research on the pros and cons of each investment structure before you invest to determine the best one for you; both now AND in the future.

Types of investment structures

Individuals

The most common and simplest investment vehicle is a person holding investments in their own name, either singly or jointly. 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.
  • More cost effective as there are no additional expenses to set up and run.
  • More tax effective, especially if the investment is negatively geared or one of the individuals is a low income earner.
  • Tax advantaged if the investment is the family home.

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.

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All investors' circumstances are different so there is no one right answer.

You may want to consider the following questions before you choose which investment structure is right for you:

  • 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?