Property Ownership Structures: Individual vs Joint vs Trust vs Company vs SMSF

Choosing the Right Vehicle for Your Victorian Property

In Melbourne’s dynamic and high-value property market, the question of how you own property is just as crucial as what you own. The ownership structure you choose is a foundational decision with profound, long-term implications for your tax position, asset protection, borrowing capacity, and eventual estate planning.

For sophisticated investors, high-net-worth individuals, and families, moving beyond simple individual ownership is not just an option—it’s a strategic necessity. The right structure can unlock significant financial advantages and provide a robust shield against unforeseen risks, while the wrong one can lead to unnecessary tax burdens, expose personal assets, and create complex succession issues.

This article provides a comprehensive comparison of the primary property ownership structures available to Australian investors, with a specific focus on the Victorian legal and financial landscape. We will examine owning property as an individual, in a joint arrangement, through a trust, within a company, and using a Self-Managed Superannuation Fund (SMSF).

1. Sole Proprietorship (Owning in Your Individual Name)

This is the most straightforward structure. The property title is registered solely in one person’s name.

• Control: The individual has absolute and direct control over all decisions regarding the property.
• Tax Implications: All rental income and capital gains are taxed at the individual’s marginal tax rate. For high-income earners, this can result in paying tax at the highest bracket (currently 45% plus levies). The owner is entitled to a full land tax-free threshold in Victoria, but this can be quickly eroded by other land holdings.
• Asset Protection: This structure offers zero asset protection. The property is considered a personal asset and is fully exposed to creditors in the event of bankruptcy or litigation.
• Estate Planning: The property forms part of the individual’s estate upon death and is distributed according to their Will. This exposes the asset to potential challenges under the Administration and Probate Act 1958 (Vic), such as a family provision claim.

Best suited for: First-home buyers purchasing their principal place of residence (PPR) or investors with a simple financial profile and low personal risk.

2. Joint Ownership

When two or more people purchase a property together, they must choose between two forms of co-ownership.

a) Joint Tenants

This is the most common structure for married or de facto couples buying their family home. The owners hold an equal, undivided interest in the property.

• The Rule of Survivorship: The defining feature is the ‘right of survivorship’ (jus accrescendi). When one joint tenant dies, their interest automatically transfers to the surviving joint tenant(s), irrespective of any provisions in their Will. This process bypasses the complexities and potential challenges of probate.
• Control: All owners must consent to major decisions, such as selling or mortgaging the property.
• Tax Implications: Income and capital gains are split equally between the owners.

b) Tenants in Common

Under this structure, co-owners hold separate, distinct shares in the property. These shares can be equal (e.g., 50/50) or unequal (e.g., 70/30).

• No Survivorship: Each owner’s share is their personal asset. It does not automatically pass to the other owners upon death. Instead, it forms part of their estate and can be bequeathed to beneficiaries via their Will. This provides crucial flexibility for estate planning in complex family situations.
• Control: Decisions are typically made jointly, but an owner has the right to sell or mortgage their specific share.
• Tax Implications: Income and expenses are allocated according to the ownership percentage, allowing for strategic tax planning where co-owners are on different marginal tax rates.

Best suited for: Business partners, friends investing together, or blended families who require certainty and control over the distribution of their share of the asset.

3. Trust Structures

A trust involves separating the legal and beneficial ownership of an asset. A trustee (who can be an individual or a company) holds the property on behalf of beneficiaries.

Discretionary (Family) Trust

This is a powerful vehicle for asset protection and tax planning.

• Control: The trustee, under the direction of the trust’s Appointor, has full legal control. This concentration of control in a single entity (ideally a corporate trustee) is highly efficient. The Appointor holds the ultimate power to appoint or remove the trustee.
• Asset Protection: A discretionary trust offers excellent asset protection. As the assets are legally owned by the trust, they are generally shielded from creditors of the beneficiaries, who have no fixed entitlement to the trust’s assets, only a right to be considered by the trustee.
• Tax Implications: This is the trust’s key advantage. The trustee has the discretion to distribute income and capital gains among the beneficiaries each year in the most tax-effective manner. For example, income can be streamed to a beneficiary on a low or zero marginal tax rate. However, be aware of Victoria’s land tax surcharge for property held in trusts.
• Estate Planning: A trust is not part of a personal estate and therefore avoids the risks and delays of probate. Control of the trust can be passed to the next generation via succession of the Appointor and Trustee roles.

Unit Trust

In a unit trust, the ownership is divided into units, much like shares in a company. Unitholders have a fixed entitlement to the income and capital of the trust according to the number of units they hold. It lacks the tax flexibility of a discretionary trust but provides clear, defined ownership.

Best suited for: Families and business owners seeking superior asset protection and tax flexibility (Discretionary Trust), or unrelated parties embarking on a joint investment (Unit Trust).

4. Company Structure

A company is a separate legal entity established under the Corporations Act 2001. The company owns the property in its own right, and individuals own shares in the company.

• Control: Directors manage the company’s day-to-day affairs, while shareholders exercise ultimate control based on their shareholding.
• Asset Protection: This structure provides a strong “corporate veil.” The company’s liabilities are its own, protecting the personal assets of the shareholders. Liability is limited to the value of their shares.
• Tax Implications: Profits are taxed at the flat corporate rate (either 30% or 25% for a base rate entity). This can be highly attractive compared to the highest individual marginal rate. However, when profits are paid out to shareholders as dividends, this may trigger further “top-up” tax. A significant disadvantage is that companies are not entitled to the 50% CGT discount.
• Complexity: Companies require formal administration, including annual returns and solvency declarations to ASIC, increasing compliance costs.

Best suited for: Long-term holds where income will be retained and reinvested within the company, or for property development projects.

5. Self-Managed Superannuation Fund (SMSF)

An SMSF is a private superannuation fund that you manage yourself. It can be used to purchase investment property, including commercial property to be used in your own business, but it is governed by extremely strict rules.

• The Rules: The investment must satisfy the “sole purpose test”—that is, its sole purpose must be to provide retirement benefits to its members. An SMSF cannot acquire a residential property from a related party, and members or their relatives cannot live in or rent it. Borrowing to purchase property must be done via a highly specialised Limited Recourse Borrowing Arrangement (LRBA).
• Control: The members (acting as trustees or directors of a corporate trustee) have direct control over the investment choice.
• Tax Implications: This is the primary benefit. Rental income is taxed at a maximum of 15% during the accumulation phase and can be entirely tax-free (0%) once members enter the pension phase. Capital gains are taxed at 10% if held for over 12 months, and potentially 0% in the pension phase.
• Asset Protection: An SMSF offers the highest possible level of asset protection. By law, superannuation assets are heavily fortified against creditors and bankruptcy claims.
• Complexity: This is the most complex and regulated structure. It requires significant financial literacy, ongoing administration, and annual audits. It is not a suitable vehicle for passive or inexperienced investors.

Best suited for: Experienced investors with large superannuation balances seeking to take direct control of their retirement strategy, particularly for acquiring business real property.

Comparative Analysis of Ownership Structures

Making the Right Choice in Victoria

Choosing the optimal structure requires careful consideration of your long-term goals. In Victoria, specific factors come into play:

• Land Tax: The Victorian land tax regime is complex. While your Principal Place of Residence is exempt, investment properties are not. Trusts are subject to a land tax surcharge, which can be significant, though exemptions can apply. The thresholds and rates must be factored into any decision.
• Negative Gearing: The ability to offset investment losses against personal income is a key consideration. This is straightforward for individual or joint ownership but more complex for trusts and not applicable for companies or SMSFs in the same way.
• Future Flexibility: Your circumstances will change. The ideal structure should accommodate future growth, changes in your family situation, and your evolving risk profile.

Conclusion

The structure through which you hold property in Melbourne is one of the most critical financial decisions you will make. It dictates your tax burden, your exposure to risk, and the ease with which you can pass wealth to the next generation. As demonstrated, each structure offers a unique blend of benefits and drawbacks.

There is no “one-size-fits-all” answer. The optimal strategy is deeply personal and depends entirely on your financial circumstances, investment goals, family situation, and risk tolerance. Attempting to navigate this complexity without expert guidance can be a costly mistake.

We strongly advise seeking integrated legal and financial advice to design a bespoke ownership strategy that secures your investment, optimises your financial position, and aligns perfectly with your wealth management objectives.