Investing as a sole (private) purchaser
Here the property is registered in one name only - usually yours. Under this arrangement, rental income is received by you only, and expenses relating to the property can only be offset against your income.
Investing as joint tenants
Ownership of the property is split equally between two or more people, with income and expenses divided the same way. The arrangement usually works best if all owners expect to receive similar annual taxable incomes for the foreseeable future, otherwise the tax benefits of negative gearing can be diluted.
Co-ownership - investing as tenants in common
Here the ownership is divided into units, with the level of ownership defined differently for each party. For example, if one of the parties is on a higher income, ownership of the property can be divided in the proportion 75/25. This way, three quarters of the losses can be allocated to the higher income earner. Of course, the same ratio would apply to income generated.
Co-owning an investment property can present investors with a number of tricky issues, so it’s vital that you create a co-ownership agreement, which is a legal document that sets out the rights and obligations of each person with a share in the property. For more information about co-ownership, download our Property Investor Guide.
Investing through a company
There can be advantages to using a company structure for a rental property, especially if there's 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.
However, companies are very costly to set up and maintain, and they must be run in accordance with strict legal requirements. Note too, it is not usually possible to distribute taxable losses among shareholders. That makes it worth speaking to your accountant if you are thinking of using a company structure for your rental property.
Investing through a trust
A trust may be a suitable ownership structure for a positively geared property as trusts can be useful for distributing income in a tax effective manner as well as offering asset protection. However trusts can be complicated to establish and maintain, and it’s critical to speak with your accountant for tailored advice on whether a trust could work for your property investment.
How can Mortgage Choice help?
Talking to your Mortgage Choice broker is a great way to start the discussion about how to structure the ownership of your investment property. Best of all, our brokers' knowledge and advice about ownership and home loan options is available at no cost to you because the lenders pay us.