Understanding Property Ownership Structures in Australia

In Australia, over 65 per cent of buyers purchase their property in their own name. However, other ownership structures may be suitable for you, depending on your intentions with the property investments and how they fit into your wider portfolio. Below, I outline a few different property ownership structures and when each structure may be suitable.

Individual Ownership

The simplest ownership structure for a property is owning the asset as an individual. This means you buy the property in your name. For a property that is your main residence, buying it in your name can be beneficial. You’ll be eligible for the capital gains tax exemption.

Getting finance for a property purchased in your name is also straightforward. You can use payslips and tax returns as proof of income. However, there are downsides. Buying a property in your name doesn’t offer asset protection if you are personally sued.

Company Ownership

A company structure is a good option for property developers or full-time property investors. As a separate legal entity, the company is run by appointed directors and owned by shareholders. Under this structure, the property and mortgage would be under the company name.

Income will be taxed at 27.5 per cent for small companies with turnover below $50 million. You get increased asset protection under a company structure, but 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: A Flexible Option

Trusts are a popular option among property investors. The most common trusts used are family trusts and unit trusts. Similar to a company structure, a unit trust gives you a defined interest in the trust. Your profit from the property will be the same as your ownership within the trust.

Unit trusts can be a good option for unrelated parties investing in property. A family trust differs slightly. It doesn’t have defined unit holders, providing flexibility and asset protection. The complexity of your trust structure may impact how much you can borrow. It’s essential to speak to your accountant about this when you apply for finance.

Joint Ventures: Collaborating for Success

If you have an end date for your property investment, a joint venture can be a good option. This structure is more common for developments. In a joint venture, the parties share in the proceeds, not just the profit. For example, each party may own adjacent blocks of land, and the proceeds will be the property built on the land.

Conclusion: Choose Wisely

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.

Additional Considerations

When deciding on a property ownership structure, consider your long-term goals. Are you looking to invest for the short term or the long term? Each structure has its benefits and drawbacks. Understanding these can help you make an informed decision.

The Importance of Professional Advice

Engaging with professionals is crucial. A financial advisor can help you navigate the complexities of property ownership. They can provide insights tailored to your unique situation. This support can be invaluable as you make decisions that will impact your financial future.

Final Thoughts

Choosing the right property ownership structure is essential for your investment success. Take the time to evaluate your options. Consider your financial goals, risk tolerance, and the level of complexity you are willing to manage. With the right guidance, you can make a choice that aligns with your aspirations.

Remember, investing in property is a significant commitment. Ensure you have the right information and support to make the best decisions for your future.