How you own your investment property matters for tax, asset protection, and long-term wealth planning. The right structure depends on your circumstances, but making the wrong choice can cost thousands in unnecessary tax or leave assets unprotected.
Overview of Ownership Structures
| Structure | Tax Rate | Asset Protection | Complexity | Best For |
|---|---|---|---|---|
| Personal name | 10.5-39% | None | Simple | Single properties, starting out |
| Company | 28% | Good | Moderate | Higher income earners, business approach |
| Trust | 39% | Good | Complex | Estate planning, asset protection |
| LTC | Personal rate | Good | Moderate | Passing losses to shareholders |
Personal Ownership
Owning property in your personal name is the simplest approach and where most investors start.
How It Works
Rental income is added to your personal income and taxed at your marginal rate. Losses (if interest exceeds income) offset your other income.
Tax Implications
If you earn $100,000 salary and $20,000 net rental income, your total taxable income is $120,000-taxed at marginal rates.
| Marginal Income | Tax Rate |
|---|---|
| $0-14,000 | 10.5% |
| $14,001-48,000 | 17.5% |
| $48,001-70,000 | 30% |
| $70,001-180,000 | 33% |
| $180,001+ | 39% |
If your marginal rate is below 28%, personal ownership is more tax-efficient than a company. However, if you earn over $180,000, you pay 39% tax on rental income-and there is no asset protection, meaning creditors can access the property.
When Personal Ownership Makes Sense
Personal ownership works well for your first investment property, particularly if your income is under $70,000 where your marginal rate makes it the most tax-efficient option. It also suits investors who want simplicity or who plan to use rental losses to offset their personal income.
Company Ownership
Holding property in a company separates it from personal assets and caps tax at the company rate.
How It Works
The company owns the property, collects rent, and pays expenses. Company profits are taxed at 28%.
Tax Implications
Rental income is taxed at a flat 28% rate regardless of your personal income. This creates a tax advantage if your personal rate exceeds 28% (income over $70,000).
To illustrate, consider $20,000 in net rental profit. Taxed personally at the 33% marginal rate, you would pay $6,600. In a company at 28%, you pay $5,600-an annual saving of $1,000. However, when profits are eventually distributed to shareholders as dividends, additional tax applies. A fully-imputed dividend to a shareholder on the 39% rate means 11% additional tax on distribution.
Asset Protection
Company assets are generally protected from personal creditors. If you are sued personally, creditors cannot typically access company-owned property (though directors can have personal liability in some circumstances).
When Company Ownership Makes Sense
Company ownership is most beneficial when your personal marginal rate exceeds 28%, allowing you to retain profits at the lower company rate for reinvestment. It also suits investors who prioritise asset protection or who plan to build a portfolio and treat property investment as a business.
Costs and Complexity
Running a company involves ongoing costs and administration. Annual company filing fees are around $50, while accountant costs typically run $500 to $1,500 or more per year for preparing annual returns. You will also need separate bank accounts for the company.
Trust Ownership
Trusts have traditionally been popular for asset protection and estate planning, but recent tax changes have reduced their attractiveness.
How It Works
A trust is a legal arrangement where trustees hold property for beneficiaries. The trust can distribute income to beneficiaries or retain it as trustee income.
Tax Implications
Since April 2024, the trustee tax rate increased to 39%-matching the top personal rate. This removed the previous advantage of retaining income in trusts.
Trusts have two options for handling income. They can distribute income to beneficiaries, who pay tax at their own marginal rates, or retain it as trustee income taxed at 39%. If beneficiaries are on lower tax rates, distributing income creates tax savings. But if no suitable beneficiaries exist, trust income is taxed at the highest rate.
Asset Protection
Trusts provide strong asset protection when properly structured. Assets held in trust are generally protected from personal creditors, relationship property claims, and business failures.
For a trust to provide effective protection, several requirements must be met. You need independent trustees-not just yourself-and genuine separation of control over the assets. The trust requires proper documentation and administration, including regular trustee meetings with documented minutes.
Estate Planning
Trusts allow assets to pass outside your estate, avoiding probate delays and providing flexibility in how wealth transfers to future generations.
When Trust Ownership Makes Sense
Trust ownership is most appropriate when asset protection is your primary concern or when you have specific estate planning requirements. It can also be tax-efficient if you have beneficiaries on lower tax rates who can receive distributed income. Many investors already have a trust structure for other assets, making it logical to hold property in the same structure.
Costs and Complexity
Establishing a trust typically costs $1,500 to $3,500, with annual administration running $500 to $1,500. Beyond the direct costs, trusts require regular trustee meetings, annual accounts preparation, and may trigger IRD disclosure requirements.
Look-Through Company (LTC)
An LTC is a special type of company where profits and losses pass through to shareholders based on their ownership percentage.
How It Works
Unlike a standard company, an LTC does not pay tax itself. Instead, rental income (or losses) flow through to shareholders who include it in their personal tax returns.
Tax Implications
Shareholders pay tax at their personal marginal rates-just like personal ownership, but with company-style liability protection.
The key advantage is that rental losses can offset shareholders' other income. This is valuable during the early years of investment when interest costs may exceed rental income. For example, if a property generates a $5,000 annual loss, with personal ownership or an LTC this offsets your salary income. With a standard company, the loss is trapped and can only offset future company profits.
When LTC Ownership Makes Sense
An LTC works well when you expect rental losses in early years and want those losses to flow through to offset your personal income, while still maintaining liability protection. It is particularly suitable if your personal marginal rate is below 28%, so you are not sacrificing the company tax rate advantage.
Limitations
LTCs have some constraints. They allow a maximum of five shareholders, all of whom must be New Zealand tax residents. The structure is not suitable for all property types, and some banks are less familiar with LTC lending, which may require working with a specialist lender. There are also annual compliance requirements similar to standard companies.
Trust Owning a Company
A common structure involves a trust owning shares in a company that holds property.
How It Works
The trust owns the company, and the company owns the property. Rental income can be retained in the company (28% tax) rather than distributed to the trust (39% tax).
Tax Implications
This structure creates a tax timing advantage. Rental profits are taxed at 28% in the company, and only attract the additional tax to 39% when dividends are eventually paid to the trust. By retaining profits in the company, you delay that additional tax-potentially for many years.
When This Structure Makes Sense
A trust-owned company structure is worth considering when you want both asset protection and tax efficiency, particularly if long-term wealth building is your goal. You need to be able to afford professional advice to set it up correctly, and the portfolio should be substantial enough to justify the complexity and ongoing costs.
Practical Considerations
Mortgage Implications
Banks treat different structures differently:
| Structure | Lending Approach |
|---|---|
| Personal | Simplest, standard residential rates |
| Company | May require commercial terms, business financials |
| Trust | Trustees personally guarantee, similar to personal |
| LTC | Some banks unfamiliar, may need specialist lender |
Discuss structure with your mortgage adviser before purchasing-changing structure later can trigger bright-line tax and refinancing costs.
Costs Comparison
| Structure | Setup Cost | Annual Running Cost |
|---|---|---|
| Personal | $0 | Minimal |
| Company | $200-500 | $500-1,500 |
| Trust | $1,500-3,500 | $500-1,500 |
| LTC | $200-500 | $500-1,500 |
| Trust + Company | $2,000-4,000 | $1,000-2,500 |
Getting It Right
The best structure depends on your specific circumstances, including your current and expected income levels, the number of properties you plan to acquire, your asset protection needs, estate planning requirements, and relationship property considerations.
Consulting with both a property tax accountant and a lawyer before purchasing investment property is essential. The cost of professional advice is far less than restructuring costs or unexpected tax bills later.
Choose Your Structure Before You Buy
There is no universally "best" structure for investment property. Personal ownership suits those starting out or on lower incomes. Companies offer tax advantages for higher earners. Trusts provide asset protection but now carry higher tax costs. LTCs allow losses to pass through to shareholders.
The right choice depends on your tax position, asset protection needs, and long-term plans. Get professional advice before purchasing-it is much cheaper than restructuring later.
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