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Navigating the complex maze of Australia's real estate industry can be challenging, especially for real estate investors. Yet, for many involved in the non-bank lending sector, shifting property ownership from an individual name to a corporate entity or trust can provide strategic advantages in financing Australia's property market. Here's a comprehensive guide to this process, tailored specifically to the Australian landscape and emphasising private lending and funding investments, which can be an innovate funding approach for private lender Australia.
1. Why Transfer Ownership for Private Lending Purposes?
Asset Protection: One of the most significant benefits is the protection of assets. When you loan money as an individual, your property is exposed to potential creditors. Holding property within a company or trust can create a layer of protection against personal liability.
Flexibility in Lending: A company or trust structure may provide greater flexibility in managing and distributing income from private lending activities, allowing for reinvestment or distribution among beneficiaries.
Taxation Benefits: Earnings and losses from lending activities may be treated differently tax-wise within a corporate or trust structure, offering more favourable tax outcomes.
Professional Perception: For those deeply involved in private lending, operating through a company or trust can project a more professional image to potential borrowers and partners.
2. Engage Australian Property Professionals: Before embarking on this journey, consult with an Australian property lawyer and accountants. They'll be abreast of the latest regulations, especially those related to stamp duty and capital gains tax (CGT).
3. Capital Gains Tax Implications: In Australia, transferring a property to a company or trust is viewed as a sale, which can activate a capital gains tax event. The property is deemed sold at its current market value, resulting in a potential capital gain or loss, and affecting your access to capital.
4. Stamp Duty Considerations: Transferring property can incur stamp duty based on the property's market value or purchase price, depending on state regulations. This financial obligation is akin to the costs associated with a second mortgage.
5. Mortgage Agreements: Inform your bank or financial institution about the change in funding financing. Refinancing might be necessary since changing the property title could breach your mortgage agreement.
6. Establishing the Entity: Establish your chosen entity (Pty Ltd or trust) via the Australian Securities & Investments Commission (ASIC) and the Australian Taxation Office (ATO), understanding their specific setup and reporting requirements.
7. Draft a Contract of Sale: A Contract of Sale is often necessary, even if no money is exchanged, particularly when stamp duty applies. This document is a crucial element of alternative funding.
8. Deed of Transfer and Land Title Office: A Transfer of Land document in your state or territory should be filed with the Land Title Office, formalising the ownership change and ensuring the legalities of the Transfer of Land are properly recorded.
9. Adjustments and Notifications: Update local councils, utility providers, and property insurance companies about the change in property ownership, and, if rented out, it's important to inform the tenants of the ownership transition to maintain transparency and compliance.
10. Ongoing Compliance: Ensure adherence to ASIC and ATO regulations with timely reporting and document management.
Conclusion:
While transitioning property ownership in Australia from an individual to a company or trust offers compelling advantages for private lending, the process is layered with legal and tax implications. The rewards can be significant for proactive investors in Australia, but the intricacies mandate a consultative approach. Collaborate with Australian property, tax, and legal professionals to guide you through the transformation, ensuring flexible finance options and opening doors to non-bank lending opportunities, thus maximising your potential as a non-bank lender.