What’s the Best Way to Hold an Investment Property?

There is no one-size-fits-all answer. The ideal ownership structure depends on your unique financial situation, your goals, and how the property is expected to perform over time. That said, there are some useful principles to guide your thinking.

Negatively Geared Properties

If the property is likely to be negatively geared (meaning the expenses, such as mortgage interest, rates, insurance, and maintenance, exceed the rental income—so you’re making a taxable loss), you’ll generally want the property owned fully or mostly by the person who earns the most income.

Why? Because you can offset that loss against other income and reduce your tax bill. For couples, this often means holding the property in the name of the higher income earner.

For example, if one partner earns $150,000 a year and the other earns $50,000, the higher income earner gets more value out of deducting the property’s losses, because it reduces taxable income taxed at higher marginal rates.

Positively Geared Properties

On the other hand, if the property is positively geared (meaning the rent collected is more than all the property costs), you’ll ideally hold it in the name of the lower income earner.

That’s because the extra income from rent is added to your taxable income and taxed at your marginal rate. If you’re already in a high tax bracket, the tax on that extra rent can be substantial.

This is especially relevant if you own debt-free property, have a large deposit, or rent the property through platforms like Airbnb, where income is typically higher.

But Properties Don’t Stay the Same,

The tricky part is that many properties start out negatively geared and over time become positively geared as rents rise and debts are paid down.

So what do people do in this situation? A common approach is to:

  • Buy a negatively geared property in the high income earner’s name.

  • When the property becomes positively geared, buy another negatively geared property to offset the new income.

  • Over the years, this can help you build a larger property portfolio that eventually generates enough income to cover costs and potentially deliver a surplus—an attractive scenario as you head toward retirement.

Considering a Family Trust

Another option to manage changing circumstances is to buy the property through a discretionary family trust.

A discretionary trust can provide significant flexibility because the trustee can decide each year who receives the income distributions. For example:

If Person A is working and Person B is at home, you can direct rental income to Person B to pay less tax.

If Person B later returns to work and Person A reduces their income, you can change the distribution accordingly.

This flexibility can be very helpful if your household income varies over time due to promotions, time off work, or career changes.

However, trusts come with catches you need to be aware of:

  • Loan approval can be harder: Not every lender is comfortable lending to a trust, though many banks now understand how trusts work. It’s vital to discuss this with your mortgage broker early on.

  • Trapped losses: If your property is negatively geared in a trust, the tax losses are “trapped” in the trust. Unlike owning the property personally, you can’t offset trust losses against your personal salary or wages. Instead, they’re carried forward in the trust and can only be used against future trust income.

  • Land tax: Some states apply higher land tax rates to properties held in trusts e.g. in NSW discretionary trusts do not get the land tax threshold. This can significantly impact your returns over time.

When a Trust Might Be a Good Fit When:

  • The property is likely to be positively geared soon (for example, due to a high deposit or strong rental yields).

  • You already have other income in the trust (such as business income or other investments), so losses can be offset internally.

  • You want the flexibility to decide who pays tax on the rental income each year.

  • You already hold a number of properties personally so you are above the land tax threshold.

If you’re thinking of using a trust, it’s critical to get expert advice to ensure the structure fits your strategy, borrowing capacity, and tax planning.

Considering a Company

A company structure may be another option, briefly some things to consider are;

  • A company is a legal entity and it will own property, it will pay the taxes and use or retain the losses.

  • A company does not get the CGT 50% discount.

Other Factors to Consider

Aside from gearing and tax, there are a few more things to weigh up:

  • Capital Gains Tax (CGT): The ownership structure affects how CGT applies if you sell the property.

  • Asset Protection: Trusts can sometimes offer protection from creditors or legal claims.

  • Estate Planning: Different structures have different rules for transferring ownership if you pass away.

Property is a long-term investment. The right ownership structure depends on your current income, your partner’s income, your borrowing power, and your plans for the future.

Getting this decision right can make a significant difference in the overall return on your investment and the tax you pay over time.

If you’d like more personalised advice about the best way to structure your next investment property, we’re here to help.

General advice disclaimer / General Advice warning: the information in this article is general in nature, it is not advice specific to your needs. If you want to act upon the information in this article then you should seek advice from a qualified professional. VJC Wealth accepts no liability to any party for acting from this information unless they have sought advice in a formal engagement for this purpose