What is the best structure for investment?

The importance of choosing the best investment structure to help minimise your tax and protect your investment

When investing, it's crucial to consider the structure you'll use. An investment structure is how your investments are legally owned. There's no single "right" structure, but some choices are better depending on your situation. Choosing the best structure is as important as the investment itself.

The importance of choosing the best structure

The best structure allows for strong future returns and the best long-term tax outcome. The wrong structure can reduce your overall return by up to 50%. Once you've invested under one structure, it's hard to change, so understand your options before investing.

If you're unsure, consult a business structures expert. They can understand your circumstances and provide the right advice. You can also bring on a virtual CFO to help plan your business's financial future.

Choosing the best investment structure for your situation

Your chosen structure impacts the tax you pay on investment income and capital gains tax (CGT) when sold. It also protects your assets, which is important for business owners. The main structures are personal, trust, or company, each with its own considerations.

The individual structure

This is the simplest structure, where you invest in your own name. It's good for straightforward investments like a family home or artwork. It works well for both high and low-income earners and can use negative gearing to reduce annual tax bills. It also allows for a 50% CGT discount when the investment is sold.

However, it offers little flexibility in distributing income and can be risky if you've signed a personal guarantee for a business loan.

The trust structure

Trusts are good for significant investments. They're formed by a deed that determines how income is distributed among beneficiaries. This structure works well for group investments, like families, and can use the 50% CGT discount.

However, trusts can't distribute losses, so they need another income stream to offset them.

The company structure

This structure is useful for high-income individuals or businesses. Investment income is taxed at a flat 30% rate, regardless of personal tax brackets. It's good for accumulating investments in listed shares, as dividends are already taxed at 30% and receive a franking credit.

Companies lack CGT discount and can only offset losses against future company income.