Choosing the Right Structure for Property Ownership in Australia

When foreign investors buy real estate in Australia, they can choose to hold the property under different legal structures, each with distinct tax consequences, compliance obligations, and surcharge implications.

The three most common structures are:

1. Personal name (individual ownership)

2. Company (corporate ownership)

3. Trust (discretionary or unit trust)

Selecting the right structure is critical not only for managing tax exposure and liability, but also for minimising surcharges, streamlining compliance, and achieving long-term financial goals such as estate planning, repatriation of profits, or asset protection.

1. Buying in Your Personal Name

This is the simplest and most straightforward structure, often used by individuals buying a property for investment, rental, or personal use (where permitted).

Advantages:

• Ease of ownership: No need to set up or administer a legal entity.

• Lower administrative costs: No company registration, trustee setup, or separate filings.

• Direct CGT rules: You may access the 50% CGT discount if you're an Australian resident (but not as a non-resident).

Straightforward tax filing: Rental income and gains are reported in your individual tax return.

Disadvantages:

• Exposed to foreign surcharges: Stamp duty and land tax surcharges apply in most states for foreign individuals.

• No asset protection: Property is personally owned — exposes you to personal liability.

• Estate planning limitations: On death, the property forms part of your estate and passes through probate.

2. Buying Through a Company

A foreign or Australian-incorporated company can own property, often used when:

• There’s a commercial purpose (e.g., development or rental portfolio)

• Investors want asset separation and protection

• There’s a group of shareholders pooling funds

Advantages:

• Asset protection: Corporate veil shields shareholders from direct liability.

• Succession planning: Easy to transfer ownership via share transfers.

• Control over profits: Income is retained or distributed as dividends.

• Fixed corporate tax rate: 25% for base rate entities, 30% otherwise.

Disadvantages:

• No CGT discount: Companies are not entitled to the 50% CGT discount.

• Still treated as foreign person: Subject to full stamp duty and land tax surcharges.

• Double taxation risk: Profits taxed in company + dividends taxed again when distributed.

• Ongoing compliance: ASIC obligations, financial statements, company tax return.

3. Buying Through a Trust

Trusts are often used by more sophisticated investors for tax flexibility, wealth protection, and inter-generational asset transfer. Common trust structures include:

• Discretionary (Family) Trust: Trustees decide who gets what income each year.

• Unit Trust: Beneficiaries own fixed units (like shareholders).

Advantages:

• Asset protection: Trust assets are legally separate from beneficiaries.

• Tax flexibility: Distribute income to lower-taxed individuals (if Australian-resident beneficiaries).

• Succession and estate planning: Beneficiaries can change without changing title ownership.

• Potential land tax minimisation: In some states (e.g., NSW), fixed/unit trusts can apply for land tax thresholds.

Disadvantages:

• Deemed foreign trust: If the trust deed does not explicitly exclude foreign persons as beneficiaries, the trust is classified as “foreign” — triggering surcharges.

• Complex setup and maintenance: Requires trust deed, trustee selection, annual resolutions, and a tax file number.

• Limited access to CGT discount: Depends on trust type and beneficiary residency.

• Additional compliance costs: Annual trust tax return, bookkeeping, and professional advice required.

Foreign Trust Traps:

In most states (especially NSW and VIC), discretionary trusts are automatically deemed foreign unless:

• The deed contains an irrevocable clause excluding foreign persons from being beneficiaries.

• The clause is inserted before the property purchase — it cannot be added retroactively to avoid surcharges on past acquisitions.