When purchasing a property, there are multiple ownership structure strategies you can choose to suit your personal financial circumstances and needs. So what are some common property ownership structures and what are their benefits and drawbacks?
Under Individual’s Name
This is the most common property ownership structure, where the buyer puts the entire property under their own individual names. This often includes spousal joint ownership.
Benefits:
Full access to negative gearing tax benefits for investment properties;
Simpler structure means cost effectiveness and easy to apply for loans;
Capital Gain Tax (CGT) discount after 12 months of property ownership.
Drawbacks:
No asset protection from creditors, particularly if you own a business;
Positive gearing income for investment properties will be taxed along with personal income.
Under Company’s Name
Company ownership structure places the asset under the company name, so that the asset belongs to the company but is managed by the company owners. Company directors will be the guarantors for the mortgage.
Benefits:
Increased asset protection;
Income generated through investment property is taxed along company income, which is capped at 30%;
Company directors can be selectively chosen, where the property can be owned outside of potential litigants, such as spouse.
Drawbacks:
No CGT discount for companies;
Lending restrictions as some banks restrict their lending to company borrowers;
Company is relatively highly regulated.
Under Trust’s Name
The two main property holding trusts are discretionary trust (including family trust) and unit trust, with discretionary distribution of income to beneficiaries and fixed distribution of income to each unit respectively. The property is owner under the trust's name while the trustee will be the guarantor of the mortgage.
Benefits:
Increased asset protection to shield from creditors;
Avoid stamp duty when transferring unit ownership within the unit trust;
Trusts are generally entitled to the CGT general discount after 12 months holding period; Relatively less regulated compared to company and easier transfer of ownership and income.
Drawbacks:
Ownership transfer from individuals into trusts is liable for stamp duty and capital gain tax;
Lending restrictions are some banks restrict their lending to trust borrowers;
Setup fees and ongoing costs for the trust.
Other Structures
Some other forms of ownership structure can include joint ventures and partnerships. Each ownership structure has its own advantages and disadvantages. When choosing property ownership structures, you must consider which strategy is most appropriate to your financial circumstances and needs.
Talk to your mortgage broker or tax accountant to strategise the best property ownership structure for yourself. Their professional experience will assist you in getting the best outcome in your next property purchase.
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