At the top of the Melbourne market, the question of who buys is often harder than the question of what to buy. A prestige purchase usually sits alongside a business, a share portfolio, an existing property or two and a succession plan, and the entity recorded on title interacts with all of them. Getting it wrong is expensive to unwind, because transferring a property between entities later is generally a dutiable transaction and may trigger capital gains tax. The structure is a decision to make before you sign, not after.
Personal names, and why they are still often right
For a principal place of residence, individual ownership is frequently the best answer despite being the least sophisticated. The main residence exemption from capital gains tax and the principal place of residence exemption from land tax are both generally available to individuals and generally not available where a company or a discretionary trust holds the property. Structures that look clever can quietly cost far more in forgone exemptions than they save in anything else.
Where the buyers are a couple, the remaining choice is how they hold: as joint proprietors, where the survivor takes the whole on the first death automatically, or as tenants in common in defined shares, where each share passes under that owner’s will. The first is simple and suits most first marriages. The second is usually the right answer in a blended family, where each partner wants their share to go to their own children rather than to the survivor.
Discretionary trusts
A family discretionary trust offers flexibility in distributing income, a degree of asset protection, and a way to hold an asset across generations without it passing through anyone’s estate. For an investment property, particularly one expected to produce income that can be streamed to beneficiaries on lower marginal rates, it can work well.
The trade-offs are real. Trusts generally do not get the main residence exemption or the principal place of residence land tax exemption, and land tax for trusts is assessed under a separate regime with a different threshold and surcharge arrangements. Negative gearing is also less useful, because a trust’s losses are trapped in the trust rather than offset against your personal income. And if any potential beneficiary is a foreign person, the trust may be treated as a foreign purchaser for duty purposes, which is a trap that catches families with adult children living overseas. Because the rates, thresholds and surcharge rules shift, check the current position with the State Revenue Office before committing to a structure.
Companies
A company holding residential property is uncommon and usually a poor fit. Companies do not receive the capital gains tax discount, the main residence exemption is unavailable, and extracting the property or its proceeds to shareholders later creates its own tax event. Where a company does appear, it is typically as the trustee of a trust rather than as beneficial owner, which is sensible: a corporate trustee gives continuity and limits the trustee’s personal exposure without changing the beneficial ownership.
Commercial and practice premises are a different conversation, where company or unit trust ownership often does make sense. We cover that ground separately in our note on buying practice premises.
Self managed superannuation funds
An SMSF can hold property, and in a concessionally taxed environment the long-term outcome can be attractive. But the constraints are severe and they are not negotiable. The fund must acquire the asset for the sole purpose of providing retirement benefits. Residential property acquired by an SMSF cannot be lived in or rented by a member or a related party, which rules out the family home entirely. Borrowing is possible only through a limited recourse borrowing arrangement with its own strict requirements, and improvements to a property subject to such an arrangement are restricted.
For prestige residential property an SMSF is therefore almost never the vehicle. For business real property, including practice premises leased back to a member’s business at market rates, it frequently is. The distinction between residential and business real property is the whole game, and it should be confirmed with your accountant and adviser before you contract.
The questions that actually decide it
Rather than starting from the structures, start from the facts. The answers usually point clearly to one option:
- Will anyone live in it? If it is to be a home, exemptions available only to individuals dominate everything else.
- Is the buyer exposed to business or professional risk? Asset protection concerns push towards separating the family home from trading entities, often by holding it in the lower-risk spouse’s name.
- Is any potential owner or beneficiary a foreign person? Foreign purchaser duty surcharges and absentee owner surcharges can change the economics substantially.
- Who should own it in twenty years? If the answer is the next generation, a trust or carefully structured tenancy in common may avoid a later dutiable transfer.
- Is there a prenuptial or family law dimension? Ownership and contributions should be documented at the time, not reconstructed later.
Get the advice in the right order
Structuring is a joint exercise between your lawyer and your accountant, and it needs to happen before the contract is signed. A contract signed in the wrong name can sometimes be corrected if caught quickly, but nominating a different purchaser after the fact can itself be dutiable, and a lender who has credit-assessed one borrower will not simply accept another. Allow time for it. At this end of the market, the vendor is rarely in a hurry, and the week you spend getting the entity right is the cheapest week of the transaction.
We act on prestige acquisitions across Melbourne, working alongside your accountant on structure, title and due diligence, with pricing disclosed before you engage us and no surprises. Book a free first consultation, or read about our conveyancing and property work. Our guides to prestige property due diligence and covenants, overlays and development potential cover the title side of the same transaction.
Frequently asked questions
Can I transfer my home into a trust later to protect it?
You can, but it is generally treated as a transfer of land and therefore a dutiable transaction, and it may also trigger capital gains tax even though the property has been your home. You would also usually lose the main residence and principal place of residence exemptions going forward. Transfers of this kind are occasionally justified, but they are rarely cheap, which is why the structure is best settled before the original purchase.
Does having an adult child overseas affect our family trust?
It can. Where the class of potential beneficiaries of a discretionary trust includes a foreign person, the trust may be treated as a foreign purchaser and attract a duty surcharge on a residential acquisition, and possibly an absentee owner surcharge on land tax. The usual fix is to amend the trust deed to exclude foreign persons before contracting, which needs to be done carefully and with advice.
Should a couple buy as joint proprietors or tenants in common?
Joint proprietorship means the survivor automatically takes the whole property on the first death, which is simple and suits many couples. Tenants in common lets each person hold a defined share that passes under their own will, which is usually preferable in a blended family, where contributions are unequal, or where each partner wants to provide for their own children. The choice should be made alongside your wills, not separately from them.