In Australia, over 65 per cent of buyers purchase their property in their own name. But other ownership structures may be suitable for you, depending on your intentions with the property investments and how it fits into your wider portfolio. Below, we outline 4 different property ownership structures and when each structure may be suitable.
The most common ownership structure for a property is owning the asset as an individual, in your name.
Pro: For a property that is your main place of residence, buying it in your name is advantageous as you'll be eligible for the capital gains tax exemption. Attaining finance for a property purchased in your name is also a lot simpler, as you can use payslips and tax returns as your proof of income.
The Con: buying a property in your name doesn't offer asset protection if you are personally sued.
A company structure is usually the path property developers or full-time property investors follow for their property journey. As a separate legal entity, the company is run by the appointed directors and owned by shareholders. Under this structure, the property and mortgage would be under the company name. Income will be taxed at approx. 27.5 per cent for small companies with turnover below $50 million.
Pro: You get increased asset protection under a company structure.
Con: You don't have access to the capital gains tax discount.
If you don't intend to hold your properties for a long time, a company structure may not be worth the time and cost to establish and maintain.
Trusts are a popular option amongst property investors. The most common trusts used by property investors are a family trust or a unit trust. Similar to a company structure, a unit trust sets out a defined interest in the trust, whereas a family trust differs slightly. It doesn't have defined unit holders, providing flexibility and asset protection.
Pro: For unrelated parties investing in property together, as the interest has to be defined, all profit from the property will be the same as the ownership within the trust.
Con: The complexity of your trust structure may impact how much you can borrow, so you need to speak to your accountant about this when you apply for finance.
Self Managed Super Fund
As many individuals move to manage their own superannuation funds, property is becoming an increasingly attractive option. If your goal is to save for retirement, then adding real estate to your SMSF can provide a number of tax advantages, particularly in the short to medium term.
Pro: Members of SMSF can gain access to significant tax efficiencies, only available in the superannuation environment
Con: Property is essentially not a set-and forget investment option – there are ongoing expenses and management factors which will require your attention. A property within SMSF will require a lot more attention than more traditional shares.
This article is for general information purposes only. There's no one size fits all when it comes to property ownership structures. Make sure you speak to your accountant for tailored advice about structuring your property investments and how different ownership structures affect your tax obligations.
Remember, this article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.