There are a number of ownership structures people use when buying an investment property. It’s important to get the ownership structure right when purchasing the property as it can be costly to alter title deeds later on.
Investing as a sole purchaser
Here the property is registered in one name only – usually the purchaser’s name. This means rental income is received by the purchaser and expenses relating to the property are only able to be offset against the purchaser’s income.
Investing as joint tenants
Under this arrangement, ownership of the property is split equally between two or more people, with income and expenses divided the same way (if this is what the joint tenants agree).
Investing through a company
Using a company structure for a rental property can have its advantages, especially if there are a large number of co-owners and the property will generate fully taxable profits. It’s easy to sell shares if one owner wants to exit the arrangement and the company tax rate is lower than the top personal tax rate. Conversely, companies are costly to set up and maintain, and they must be run in accordance with strict legal requirements. It is also not usually possible to distribute taxable losses among shareholders. It’s a good idea to speak to an accountant if you are thinking of using a company structure for your investment property.
Investing through a trust
A trust may be a suitable ownership structure for a positively geared property as they have the potential to be used to distribute income in a tax effective manner. Trusts also provide asset protection. However, trusts can be complicated and costly to establish and maintain. It’s important to speak with your accountant for tailored advice on whether a trust could work for your property investment.