Purchasing in a Trust or Company vs Purchasing as an Individual

Purchasing in a Trust or Company vs Purchasing as an Individual

Purchasing property in your individual name is the simplest and easiest way to purchase property. For properties to ‘live in’, purchasing in your individual name almost always makes sense given the concessional tax treatment of the family home.

For investment purposes, most mum and dad property investors make purchases in their own names. This is likely because the tax system encourages purchases to be made individually (negative gearing works for individuals & capital gains concessions are available).

However, this structure offers little ‘asset protection’ if things go wrong. Lawyers usually strongly advise against purchasing in your own name because your assets aren’t well protected if things go wrong (if you’re sued for example).

It may be worth considering whether it makes sense to purchase in other entities. The considerations usually at play are:

• Land tax thresholds: In some states, you can refresh your threshold by purchasing in a different entity to yourself. This means for advanced investors, utilising trusts and companies can be a useful way to minimise property taxes.
• Asset protection: Companies and Trusts offer greater asset protection. When well structured, they allow you to separate your assets from you. If you are in ‘risky’ employment situations, protecting your personal assets makes greater sense.
• Tax: Companies and Trusts offer a lower tax rate, but do not receive any CGT concessions. There may be overall taxation benefits to purchasing in a trust/company, depending on your investing strategy.
• Finance: The financing of assets purchased in a company or trust is broadly like an individual purchase. The main difference is that tax ‘losses’ are trapped inside trusts/companies, therefore cannot be used as an addback in borrowing power calculators. This is usually a marginal impact on most lender calculators. Therefore, in some cases, purchasing via a trust/company lowers your borrowing capacity marginally.
• Administration costs: purchasing in a company or trust involves a company/trust set up fee, and ongoing administration costs and separate tax returns. This is a major reason why investors often prefer to purchase in individual names.

In most cases, mum and dad investors who do not see the value in protecting their assets will purchase in their individual names. As they grow their portfolio, there may be tax benefits to purchasing in a trust – mainly minimising state based land taxes. Usually these tax benefits outweigh the administrative costs for those investors with deep investment portfolios.

For those that are in roles that are a little riskier, asset protection becomes more important. This encourages more sophisticated structures that better protect your hard-earned assets by separating them from you as an ‘individual’.