These days there exists significant opportunity to purchase property through a range of entities other than a personal name. Entity ownership is usually suggested as a way to provide a reduction of tax as well as potentially ease the transfer of the asset. In effect, an entity can be created in which the property investment can be held, thereby removing the clients as owners. There are different ways to do this, each with its own advantages and disadvantages.
Before outlining these options, it must be noted that the creation of an entity to reduce tax may be considered tax avoidance under the anti-avoidance provisions of the tax law.
Under current law, three conditions must be satisfied before Part IVA of the ITAA 1936 can apply to a tax avoidance scheme.
There must be:
Purely for your information and interest, the existence of a ‘tax benefit is a precondition to the operation of subsection 177F(1), which is the main operative provision of Part IVA. Currently, whether a taxpayer has obtained a ‘tax benefit will depend on whether they have reduced their tax liability using one of the specified methods set out in sections 177C, 177CA, 177EA and 177EB of ITAA 1936.
That is, setting up any type of scheme whose main purpose is to avoid tax might be considered fraudulent under these provisions. This could include the setting up of an entity in which to purchase property if no other dominant purpose exists other than to avoid tax.
Some examples of such entities are discussed in the next topics.