SOLE TRADER
This is where you purchase property in your own name. This is advantageous where you have property investments that are making losses, as these are available to offset against personal taxable income from other sources in the income year when preparing Income Tax Returns. Long-term holders of several properties should probably consider investing in other structures.
PARTNERSHIP
This is where you purchase property in joint names, normally with a spouse. It is a separate entity for tax purposes and allows for efficient use of income splitting of profits particulary where one spouse is in the lower tax bracket. A share of the profit or loss is added to personal taxable income of the partners from other sources in the income year when preparing Income Tax Returns.
COMPANY
This structure is a separate legal entity for tax purposes and will generally be used by the serious investor. Typical company structures are:
 | Ordinary company- gives you the ability to split income similar to a partnership or retain profits within the company. This is useful where the shareholders are already taxed at the highest individual tax rate, therefore taking advantage of the lower company tax rate. If a loss is made on the property/properties, this loss must remain in the company and accumulates until it is offset against future assessable income, and is not available to offset against personal income of the shareholders |
| Loss Attributing Qualifying Company- losses are attributed direct to the shareholders in the proportion of their shareholdings, and added to their personal income tax when preparing Incme Tax Returns. Profits can be retained in the company and tax paid by the company if the tax rate is tax effective when looking at the taxable income of the shareholders. Is suitable when the property investments are achieving a taxable loss overall. |
FAMILY TRUST
This is a separate entity and any profits that are made by the Family Trust can be retained and taxed at a trustee rate or distributed to beneficiaries at their marginal rate, which will reduce overall tax if this is lower than the trustee rate. The Inland Revenue Deparatment has recently adjusted the law to stop the tax benefits available by distributing profit to minors. This vehicle offers the best asset risk protection of all these structures, as the value of the assets are not personal to individuals, and therefore not available for distribution in cases of bankruptcy, marriage or relationship dissolution of the individuals, and are not regarded as personal assets when considering eligibility to obtain rest home subsidies, provided gifting programmes have been completed within certain timeframes. As in the ordinary company, taxable losses cannot be transferred to the beneficiaries of the trust. Instead, these losses are carried forward for the trust to offset against taxable income in future years.