Deciding on the right ownership structure and whose name goes on the title for your investment property might feel like paperwork. It isn’t.
It can influence your tax position, your borrowing power and your long-term wealth strategy.
And the tricky part? The “right” answer today may not be the right one in five, ten or twenty years.
Let’s unpack what actually needs to be considered.
It’s Not Just About Who Earns More Today
On the surface, if one spouse earns significantly more than the other, it can seem obvious to purchase in the higher income earner’s name to maximise negative gearing.
If someone earns $200,000 and the property makes a $10,000 loss, that loss offsets income at a higher marginal tax rate. The tax saving is materially larger than if the same loss sat against a $70,000 income.
But here’s the catch.
We often think about the financial outcomes as they are today, not what it will become.
A property might be negatively geared for seven years and positively geared for the next twenty-three.
If it becomes strongly cashflow positive and sits in the higher income earner’s name, that positive income is taxed at their higher marginal rate. And when the property is eventually sold, the capital gain is also assessed in the owner’s name.
What works beautifully on the way in may not be super efficient on the way out.
That’s why ownership decisions need to factor in more than just current salaries.
Zoom Out: Think Beyond the Deal in Front of You
Before deciding between sole ownership, 90–10 tenants in common or 50–50, ask:
- What are your current incomes?
- How might they change over the longer term?
- What is your timeline for holding the property?
- Will you need to sell one or more to purchase a family home?
- What’s your timeline for retirement and do your retirement timelines differ?
- How does your overall investment portfolio performance and planning compare?
Income gaps can narrow. Careers can shift. Someone may go on maternity leave. One partner may scale back work earlier than the other. Or take a complete career pivot.
If you’re on a lower income now, but that’s likely to grow in a few years, that needs to factor into the calculations.
There may be an answer today for what looks like the best ownership structure for an investment property. But because time moves and things change, that answer may not be fit for purpose in the future. You have to do that planning, that crystal ball activity, even though you never know exactly what’s going to happen.
Don’t Look at One Property in Isolation
Ownership decisions also need to be considered in the context of your entire portfolio.
For example, if two existing investment properties already sit in one spouse’s name, what’s their aggregate position?
Are they negatively geared? Are they becoming positively geared? Does the positive income from one outstrip the losses from the others?
It’s the net position that matters. The totality of the income across all investment properties will flow into that person’s tax return.
Adding a new investment property into the other spouse’s name might create diversification across the household from a tax perspective. Or it might not.
You can’t know unless you step back and look at the bigger picture.
There Isn’t Just One Right Structure
Here’s the reality: there isn’t just one right structure. There are multiple viable pathways available for structuring ownership of an investment property.
What works perfectly for someone else may not be the right option for you.
Structuring lending and ownership properly is nuanced. It’s technical. And it’s very difficult to get right on your own without advice tailored to your situation and goals.
Often you only get to the right answer through conversation, untangling the web and working through the different considerations. That’s why blanket strategies can be dangerous. A generic “always buy in the higher income earner’s name” approach ignores too many moving parts.
Ownership structure isn’t just about tax. It intersects with:
- Borrowing capacity
- Lender policy
- Serviceability
- Long-term retirement planning
- Future asset sales
And once loans are set up and contracts are signed, unwinding the structure can be difficult, sometimes impossible and often expensive.
Some mistakes simply can’t be unravelled.
The Long Game Matters
Sophisticated investing isn’t about chasing the next property deal.
It’s about sequencing, structuring and aligning ownership with where you expect to be over the next decade or two.
You might be negatively geared for a short period and positively geared for a long one. One partner might retire earlier. Family plans might change. Income trajectories might surprise you.
You never can be certain of what’s going to be right because you don’t know how life will pan out if you plan to own the property for a long period of time.
But you can take the time to think it through properly.
For more information, listen to the Property Trio Podcast
Reach Out to Us
If you would like to discuss your next steps, property plans, and mortgage strategy, get in touch with us today. Our team of experts is here to guide you through the complexities of the market and help you achieve your property goals.
