Investment Property - What Structure?
- Arnold Shields
- Feb 21, 2011
- 3 min read
Updated: Jun 16
Investments can be structured in a number of ways—individual name, partnership, company, trust, or self-managed superannuation fund (SMSF). There's no universal solution. The right choice depends on your goals around asset protection, income distribution, financing needs, tax efficiency, capital gains, and compliance costs.
Here’s how negative gearing works across the key investment structures.
1. Individual Ownership
This is the simplest and most cost-effective structure.
Advantages:
Low setup and ongoing compliance costs.
Negative gearing losses can be used to offset other personal income—salary, business income, or investment returns.
Most effective for high-income earners who benefit from tax offsets at the top marginal tax rate.
Disadvantages:
Capital gains on sale are taxed at your personal rate.
Little asset protection.
Estate planning may be limited, although CGT concessions can apply when passing assets via a deceased estate.
2. Partnership (Including Joint Tenants or Tenants in Common)
Ideal where multiple people are funding the investment together.
Advantages:
Low cost to establish.
Joint tenants split income and losses equally (50/50).
Tenants in common can allocate income and deductions based on ownership proportions.
Considerations:
If one partner is a low-income earner, tax benefits from negative gearing may be lost.
One workaround is salary packaging interest expenses to shift tax benefits to the higher-income partner.
On death:
Joint tenancy: Property interest passes directly to the survivor with no CGT or stamp duty.
Tenants in common: The deceased’s interest forms part of their estate, and CGT/stamp duty may apply depending on how it is dealt with.
3. Trusts
Unit Trusts are preferred when unrelated investors contribute capital and require fixed entitlements. Discretionary Trusts (Family Trusts) are used when asset protection or income distribution flexibility is a priority.
Advantages:
Potential asset protection.
Income streaming to beneficiaries.
Access to 50% CGT discount after 12 months.
Disadvantages:
Negative gearing losses are quarantined in the trust.
Complex rules for using carried-forward losses (e.g. family trust election).
Trusts don’t allow immediate deduction of losses by beneficiaries.
Common Mistakes:
An individual borrows to lend interest-free to a family trust, then claims deductions, disallowed due to lack of income-producing purpose.
An individual subscribes to units in a unit trust that leases property at below-market rent to a relative, only partial deductions allowed for interest costs.
4. Company
Advantages:
Flat tax rate (generally 30%) on income and capital gains.
Suitable for reinvesting profits into further business activity.
Disadvantages:
Negative gearing losses are locked within the company and cannot be distributed to shareholders.
No 50% CGT discount—can result in a higher effective CGT liability.
Less flexibility for family tax planning.
5. Self-Managed Superannuation Fund (SMSF)
Investing in property through SMSF has become popular, particularly using instalment warrants or limited recourse borrowing arrangements (LRBAs).
Advantages:
Income taxed at 15%; capital gains at 10% (if held >12 months).
Income can be tax-free during pension phase.
Disadvantages:
Limited benefit from negative gearing (only 15% tax saving).
Strict rules on loan repayments, cash flow and contribution planning essential.
No contributions allowed beyond age 75, limiting repayment capacity in retirement.
Property-heavy SMSFs may face liquidity issues during vacancies or unexpected costs.
Final Thoughts
Choosing the right investment structure is a balancing act. There are short-term tax advantages to negative gearing, but long-term implications, especially capital gains and estate planning, should not be overlooked. What works for one investor may not suit another.
Get in touch with our team at Dolman Bateman to assess the best structure for your investment strategy. We’ll help you weigh the tax impact, risk, and cash flow implications so you can make informed decisions that support long-term wealth creation.
Disclaimer:
The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.
