Depending on your circumstances there are a few options when deciding in which name to purchase a property.
Your Personal Name
You totally own the property. You can derive the full benefit of negative gearing. You also gain the full capital gain of the property upon selling it. You can use the property as collateral to obtain bank finance. However, your creditors can sue you for any unpaid liability with legitimate claim to your property.
Joint Tenants
In a couple or a business partnership situation it is common to have the property in both names. However, it is not the most efficient way to purchase an investment property to minimise tax.
When investing it is wiser to assign the property in the name of the highest income earner in order to benefit from tax incentives. However, if the property is equally shared you have the ability to split the income produced or loss incurred. In the event of death of one partner the ownership of the property is automatically transferred to the surviving partner.
Tenants in Common
Purchasing a property under this legal option gives you the ability to apportion the property by shares. For example, you may own 80 percent share of the property and your partner the remainder 20 percent of the property.
If one party dies, then that share of the property becomes part of the deceased’s estate and the shares will be distributed according to the will.
Companies
If you decide to purchase a property under the company name, it is important to note that a company has its own legal entity hence; it may limit your personal liability against debts raised by the company.
The company may also benefit from the lower tax rates when it comes to paying tax from income produced by the property.
The company cannot benefit from full negative gearing (as the company marginal tax rate is lower than the top tax rate for individuals) or other stamp duty concessions or the first home buyers grant.
Trust
Depending on your tax situation a trust structure may be ideal for tax equalisation. Buying in the trust name may provide protection from creditors. As a beneficiary of the trust you can have control of the property. The income is distributed to the beneficiaries of the trust. However, beneficiaries cannot share the losses from the property. Buying in a trust name is very complicated and you should always obtain advice from an accountant. Under a trust structure you may lose the benefit of negative gearing.
Complying Superannuation Fund (SMSF)
You may now purchase a property under a complying superannuation fund. The condition of the fund is that you may only have access to the property when you effectively retire. Income from this structure is concessionally taxed. However, the fund is not able to borrow money to accumulate other property. Buying property under this structure should not be considered unless you obtain legal and taxation advice.
