One of the most important decisions when purchasing real estate is choosing the right ownership structure. Whether you’re buying property in your name, company name, or a trust structure for property investment, the structure you choose can have significant legal, tax, and financial consequences.
Many property investors consider using trust structures due to their benefits in terms of tax implications and asset protection.
In this guide, we’ll break down the advantages and disadvantages of each ownership option.
Buying in Your Name
Owning property under your personal name is the most common option for individual buyers. One of the biggest benefits is access to negative gearing, which allows you to offset losses on the property against your taxable income, potentially reducing your tax bill.
Additionally, individual owners can benefit from a 50% Capital Gains Tax (CGT) discount if they sell the property after holding it for more than 12 months.
However, owning property in your own name exposes your personal assets to risk, especially if you run a business. If the property is positively geared (meaning rental income exceeds expenses), the income is taxed at your individual tax rate, which could be as high as 47%.
Learn more about tax strategies for property investments in our guide on investment property tax reductions.
Buying in a Company Name
Investing through a company offers significant asset protection. The company owns the property, shielding your personal assets from any business-related liabilities. Companies are taxed at a flat rate of 30%, which may be lower than the highest individual tax rate.
However, companies are not eligible for the 50% CGT discount, which can impact your long-term profitability if you plan to sell the property at a significant gain.
It’s a structure that works well for property developers or those holding positively geared properties, where profits can be taxed at the lower corporate rate.
If you’re thinking about the right time to invest in property, check out our article on when is the right time to invest.*
Buying in a Trust
Many investors turn to trusts to manage and protect their assets. Trusts offer flexibility in income distribution, allowing trustees to allocate income to beneficiaries in lower tax brackets. Trusts also offer solid asset protection, particularly when using a corporate trustee.
There are two main types of trusts used for property investment:
- Unit Trusts – Beneficiaries hold fixed units, and income is distributed based on the number of units each holds.
- Discretionary (Family) Trusts – The trustee has discretion over income distribution, making it more tax-efficient.
Trusts can also benefit from the 50% CGT discount, like individual ownership. However, trusts are expensive to set up and maintain and may not be ideal for negatively geared properties.
For first-time buyers, our article on what to consider when buying your first home offers more insights on getting started.
Pros and Cons at a Glance
| Ownership Structure | Key Benefits | Key Drawbacks |
|---|---|---|
| In Your Name | Simple, eligible for negative gearing and CGT discount | Limited asset protection, taxed at individual rate |
| Company | Asset protection, capped tax rate (30%) | No CGT discount, higher long-term costs |
| Trust | Flexible income distribution, asset protection, CGT discount | Costly setup, higher ongoing fees, not ideal for negative gearing |
Why Trusts Are Growing in Popularity
Buying a property in a trust allows for better asset protection, which can shield the property from creditors. A trust is especially useful for those in high-risk professions who want to protect their investments from potential lawsuits.
Furthermore, trust tax returns provide flexibility in distributing income to different beneficiaries, which can reduce the overall tax benefit burden on any one person.
Additionally, trust structures shield properties from creditors and legal challenges. This is particularly important in uncertain financial climates, making trusts a smart option for long-term property investments.
If you want to learn more about how negative gearing can benefit your investment, read our detailed guide on what is negative gearing and how it works.
Trust or Company Structure: Which is Better?
When deciding between a trust or company structure, property investors should consider both the pros and cons.
A company structure may offer benefits like a lower corporate tax rate and enhanced asset protection, but it does not qualify for the 50% Capital Gains Tax (CGT) discount.
In contrast, buying property in a trust allows you to take advantage of trust income distributions, which can be tax-efficient, especially for family members.
Trust Tax Returns
Trust tax returns can be more complex than individual or company returns due to the discretionary nature of income distribution.
However, this complexity comes with significant benefits, especially when it comes to reducing the taxable income of beneficiaries. Ensuring tax effective strategies for your trust requires regular due diligence and proper advice from financial professionals.
Home Buying Tips for Different Ownership Structures
For individuals looking to buy a home, purchasing under your own name offers simplicity but limits asset protection.
Property purchased in a trust structure or company name offers more control over how rental income and trust income are distributed, providing better protection against potential financial risks.
Investment Property in a Trust
Many property investors look to trusts to optimize their real estate portfolios. The flexibility of trusts, especially unit trusts, makes them appealing for handling complex types of property investments.
Trusts can also help with tax benefit strategies, especially for rental income and property management, though they do come with higher setup and maintenance costs.
Trusts and Property Due Diligence
It is crucial to conduct a thorough property due diligence checklist before committing to an ownership structure. For example, investment property in a trust offers tax advantages like income splitting but may complicate property taxes and land tax obligations.
Consulting with a real estate agent and financial advisor can help you understand the full pros and cons of each structure.
Types of Trusts for Property Investment
There are several types of trusts to choose from when buying a property, such as unit trusts and discretionary trusts. Each has its unique benefits.
Unit trusts offer fixed distributions based on ownership shares, whereas discretionary trusts provide flexibility in distributing income and capital gains among beneficiaries. The choice between types of trusts will depend on your investment goals and tax strategy.
Advantages and Disadvantages
In summary, choosing between owning a property in your name, a company, or a trust involves understanding the advantages and disadvantages of each.
While buying property in a trust offers asset protection and tax flexibility, it may come with higher costs and more administrative requirements. Conversely, owning property through a company name may save on taxes but limits CGT discounts.
Conclusion
Deciding whether to buy a property in your name, company name, or trust depends on your financial situation, goals, and risk tolerance.
While individual ownership offers simplicity and tax benefits, companies and trusts provide enhanced asset protection and potential tax savings for long-term investors.
Before making any decisions, it’s vital to seek professional advice to understand which structure aligns best with your investment goals.
If you’re still wondering when is the best time to buy, check out our article on how to time your property investment.
Property purchase considerations
Lastly, before you purchase the property, always evaluate your reasons and the potential returns on investment. When it comes to buying property, whether in a company or trust, being well-informed and having clarity on your goals is paramount.
Related articles:
- The Property Due Diligence Checklist For Buyers
- Home Buying Tips for Every Age
- The Ultimate House Inspection Checklist
FAQs on Whether to Put Property in a Trust or Company
Should I put property in a trust or company?
A trust is ideal for protecting assets and minimizing taxes. A company is better suited if your focus is running a business and making profits.
Is it better to buy property under a company?
Buying property under a company name offers asset protection and potential tax benefits. For instance, a company may attract a lower tax rate on rental income from the property.
What are the disadvantages of buying property in a trust?
The primary downsides of buying property in a trust include the complexity and cost of setting it up, as well as tax implications.
Should you buy property in your own name?
Owning property in your name can be beneficial for high-income earners looking to reduce tax via negative gearing. However, if the property becomes positively geared or is sold, the tax on that income may be higher due to your personal tax rate.
Have you signed up on Soho.com.au?
You get better matches when you swipe and shortlist. Our algorithm learns what you like and sends you better properties. So get registered here. Whether you’re property seeking in Sydney or anywhere across Australia, we got you.
But don’t just stop there, download our app to get the full Soho experience. Just remember to shortlist or swipe left on our listings so we can send you others that better match what you’re looking for. And if you’re looking for more advice on buying your first home, check out our guide on what to consider first!
