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OCT 02 2019
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Why is property ownership structure more important than you think

Posted by: Connie in Finance 101

Determining the right type of ownership structure is one of the most common and challenging parts when it comes to property purchase. If you don’t conceive your property ownership structure right when you buy a property and change it after settlement, it can result in many potential disadvantages.

That’s why in this week’s blog, our guest tax accountant, Yiping Ge, discusses the importance of establishing the right property ownership structure and the available options of owning your assets. 

Why is property ownership structure more important than you think

Video Timeline:

1. Yiping Ge, partner of New Zealand top accounting firm - Gilligan Sheppard -- 00:57

2. Why is it crucial to establish a right property ownership structure? -- 03:27 

3. The pitfalls of changing your property ownership structure after settlement -- 07:00

4. The types of property ownership --10:09


1. Yiping Ge, partner of New Zealand top accounting firm - Gilligan Sheppard

Gilligan Sheppard has been established for over three decades in New Zealand. With their global presence in New Zealand, Philippines and India, Gilligan Sheppard take time to get to know their clients’ organisations, help them to stay in touch with the changing legislative and financial environments and provide them with a level of insight that all New Zealand business owners who aspire to success should embrace.

Gilligan Sheppard doesn’t just look after your financial statements and tax, they have built their Value Added Services (VAS) Team. They provide all the financial services that you’ll need surrounding a transaction that includes property purchase and sale, business purchase and sale, and many other transactions. 


2. Why is it crucial to establish a right property ownership structure? 

If you’re planning to purchase properties in New Zealand, you should pay attention to get your property ownership structure right. It’s crucial that you establish an ownership structure that works for you. Here’s why:

Avoid accidentally converting your wealth to other people

For individuals or families, the process of converting cash to assets is a big transaction when you buy land or properties. You need to carefully choose the ownership structure of your assets. If not, sometimes you might accidently change the ownership of your wealth. For example, you use your money to buy a property, but you put the property under your children’s name, and if you don’t create a loan agreement, then you effectively convert your wealth to your children.

Tax

Your property ownership structure can have a significant influence on the tax amount that you need to pay.

Asset protection

Some property owners choose not to hold their properties under their personal name to protect their assets in case they experience financial risks. For example, if you are a business owner, your properties and other personal assets are at risk if you hold them in your personal name.

What’s more, a family trust can protect your properties for your chosen beneficiaries, your children for example, and prevent it against claims from your ex-partners.

Legislation requirements

Because of the New Zealand legislation limitation, some people are not eligible to buy property in New Zealand. For example, the Overseas Investment Act (OIA) sets strict requirements for overseas people on buying properties in New Zealand. Consequently, they may have to use other entities, not their personal name, to own properties.

Another example is the Anti-Money Laundering Act (AML act). Under this law, all banks are required to verify a customer’s identity and deposit source, which may prevent some people owning property under their own names. Similarly, they have to hold their properties under other entities, not their personal name, to meet New Zealand’s legislation requirements.


3. The pitfalls of changing your property ownership structure after settlement

If you don’t conceive your property ownership structure right when you buy a property and change it after settlement, it can result in many potential disadvantages. Here are the pitfalls that might be involved when you change your property ownership structure:

Fees

Changing the ownership structure after the structure has been established will incur unnecessary costs, such as bank fees and legal fees.

Tax

The bright-line property rule was updated on March 2018. Even you just sell your properties from your personal name to your family trust, you might be caught up by the bright-line rule and pay tax.


IRD is watching you

IRD monitors each transaction surrounding each individual. Say you have four properties and you transfer them from your personal names to your family trust, which is defined as a big transaction from IRD’s perspective and may trigger them to check your recent financial situation. 


4. The types of property ownership

When it comes to structuring your property ownership in New Zealand, there’s no one-size-fits-all solution. Here are some examples of the way you hold the title to your properties:

  • Individual – you own the property under your personal name
  • Partnership or joint venture– two individuals jointly own the property.
  • Company/Look-through company (LTC) – your property is owned by a company in which you hold some or all the shares
  • Trust – your trust manages your property
  • Limited partnership – Very helpful for overseas people who want to invest in New Zealand

Before you commit to any financial proposition that requires an ownership structure, you should obtain legal advice both from your accountant and solicitor. Each structure has its own benefits and drawbacks, and its usage varies depending on your personal circumstances. They can identify risks that you may not even consider.

Setting up a right ownership structure can be complicated, and you need a professional accountant, like Yiping Ge, to help you understand the details and work out the best solutions before you commit to a course of action. If you would like to discuss your property ownership structure with Yiping, you can contact her via: yiping@gilshep.co.nz or by calling: 021 132 2801.


Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.


Prosperity Finance – here to help

Prosperity Finance looks at your loans strategically, empowering you to make the best long-term, informed decisions. We are professional mortgage brokers and are here to help. Give us a call today on 09 930 8999.

Other Recommended Blogs:

Mistake to avoid: Not including the right conditions in your property sale and purchase agreement?

Incorrectly converting home to investment property could cost you extra $7k a year

How to protect the money your parents help you for your first home, before you divorce


Tags:

Determining the right type of ownership structure is one of the most common and challenging parts when it comes to property purchase. If you don’t conceive your property ownership structure right when you buy a property and change it after settlement, it can result in many potential disadvantages.

That’s why in this week’s blog, our guest tax accountant, Yiping Ge, discusses the importance of establishing the right property ownership structure and the available options of owning your assets. 

Why is property ownership structure more important than you think

Video Timeline:

1. Yiping Ge, partner of New Zealand top accounting firm - Gilligan Sheppard -- 00:57

2. Why is it crucial to establish a right property ownership structure? -- 03:27 

3. The pitfalls of changing your property ownership structure after settlement -- 07:00

4. The types of property ownership --10:09


1. Yiping Ge, partner of New Zealand top accounting firm - Gilligan Sheppard

Gilligan Sheppard has been established for over three decades in New Zealand. With their global presence in New Zealand, Philippines and India, Gilligan Sheppard take time to get to know their clients’ organisations, help them to stay in touch with the changing legislative and financial environments and provide them with a level of insight that all New Zealand business owners who aspire to success should embrace.

Gilligan Sheppard doesn’t just look after your financial statements and tax, they have built their Value Added Services (VAS) Team. They provide all the financial services that you’ll need surrounding a transaction that includes property purchase and sale, business purchase and sale, and many other transactions. 


2. Why is it crucial to establish a right property ownership structure? 

If you’re planning to purchase properties in New Zealand, you should pay attention to get your property ownership structure right. It’s crucial that you establish an ownership structure that works for you. Here’s why:

Avoid accidentally converting your wealth to other people

For individuals or families, the process of converting cash to assets is a big transaction when you buy land or properties. You need to carefully choose the ownership structure of your assets. If not, sometimes you might accidently change the ownership of your wealth. For example, you use your money to buy a property, but you put the property under your children’s name, and if you don’t create a loan agreement, then you effectively convert your wealth to your children.

Tax

Your property ownership structure can have a significant influence on the tax amount that you need to pay.

Asset protection

Some property owners choose not to hold their properties under their personal name to protect their assets in case they experience financial risks. For example, if you are a business owner, your properties and other personal assets are at risk if you hold them in your personal name.

What’s more, a family trust can protect your properties for your chosen beneficiaries, your children for example, and prevent it against claims from your ex-partners.

Legislation requirements

Because of the New Zealand legislation limitation, some people are not eligible to buy property in New Zealand. For example, the Overseas Investment Act (OIA) sets strict requirements for overseas people on buying properties in New Zealand. Consequently, they may have to use other entities, not their personal name, to own properties.

Another example is the Anti-Money Laundering Act (AML act). Under this law, all banks are required to verify a customer’s identity and deposit source, which may prevent some people owning property under their own names. Similarly, they have to hold their properties under other entities, not their personal name, to meet New Zealand’s legislation requirements.


3. The pitfalls of changing your property ownership structure after settlement

If you don’t conceive your property ownership structure right when you buy a property and change it after settlement, it can result in many potential disadvantages. Here are the pitfalls that might be involved when you change your property ownership structure:

Fees

Changing the ownership structure after the structure has been established will incur unnecessary costs, such as bank fees and legal fees.

Tax

The bright-line property rule was updated on March 2018. Even you just sell your properties from your personal name to your family trust, you might be caught up by the bright-line rule and pay tax.


IRD is watching you

IRD monitors each transaction surrounding each individual. Say you have four properties and you transfer them from your personal names to your family trust, which is defined as a big transaction from IRD’s perspective and may trigger them to check your recent financial situation. 


4. The types of property ownership

When it comes to structuring your property ownership in New Zealand, there’s no one-size-fits-all solution. Here are some examples of the way you hold the title to your properties:

  • Individual – you own the property under your personal name
  • Partnership or joint venture– two individuals jointly own the property.
  • Company/Look-through company (LTC) – your property is owned by a company in which you hold some or all the shares
  • Trust – your trust manages your property
  • Limited partnership – Very helpful for overseas people who want to invest in New Zealand

Before you commit to any financial proposition that requires an ownership structure, you should obtain legal advice both from your accountant and solicitor. Each structure has its own benefits and drawbacks, and its usage varies depending on your personal circumstances. They can identify risks that you may not even consider.

Setting up a right ownership structure can be complicated, and you need a professional accountant, like Yiping Ge, to help you understand the details and work out the best solutions before you commit to a course of action. If you would like to discuss your property ownership structure with Yiping, you can contact her via: yiping@gilshep.co.nz or by calling: 021 132 2801.


Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.


Prosperity Finance – here to help

Prosperity Finance looks at your loans strategically, empowering you to make the best long-term, informed decisions. We are professional mortgage brokers and are here to help. Give us a call today on 09 930 8999.

Other Recommended Blogs:

Mistake to avoid: Not including the right conditions in your property sale and purchase agreement?

Incorrectly converting home to investment property could cost you extra $7k a year

How to protect the money your parents help you for your first home, before you divorce


Tags: