Property in Your Own Name: Tax Considerations

Owning Property Individually

Dom explains that individual ownership is by far the simplest and cheapest structure, requiring no special setup, just a loan and a straightforward annual tax return entry, whether the property is positively or negatively geared.

Joint Tenants vs. Tenants in Common

Once a second person is involved, Dom explains this is legally treated as a partnership, regardless of the ownership split, which becomes particularly relevant for land tax purposes later. He outlines the two main co-ownership structures: joint tenants, where ownership automatically transfers to the surviving owner if one person dies (with no will required for that transfer, and typically no stamp duty payable), and tenants in common, where owners hold a defined percentage (not necessarily equal) that can be individually assigned in a will, though changing those percentages later generally does attract stamp duty (deceased estate transfers aside).

Dom shares a personal family example: his grandfather's property was set up as joint tenants without much thought at the time, which the family later had corrected to a 50/50 tenants-in-common arrangement (at a nominal cost, without stamp duty) once they recognised the automatic-transfer implications weren't what they actually wanted.

Buying With Siblings or Friends

Dom notes this arrangement is relatively uncommon but does happen, generally motivated by wanting to enter the market sooner by pooling deposits. He cautions that without a clear strategy and something in writing, investors can find their hands tied for future purchases, since lenders will factor in a co-owned property's full debt when assessing borrowing capacity for a subsequent, unrelated purchase. His and Damien's shared suggestion: treat this kind of arrangement as a short-term joint venture (roughly two to three years) with a clear exit plan, capturing capital growth together before each party goes on to invest independently, rather than an open-ended commitment.

How Income and Expenses Are Split

Dom clarifies that while rental income and most expenses (council rates, water, insurance, gardening, agent fees) must be split according to ownership percentage, several specific expenses don't have to be: interest (since each owner's own loan and cash contribution can differ), repairs and maintenance (an owner who personally pays for a specific repair can claim their own contribution rather than splitting it), land tax (which depends on each owner's total property holdings, not the co-owned property alone), and depreciation on separately purchased items (such as one owner buying and claiming an air conditioner).

Capital Gains Tax

Dom explains the standard 50% capital gains discount applies to any asset (individually or jointly owned) held for more than 12 months, with the taxable gain added to the owner's income for that year at their marginal tax rate. Timing matters significantly: realising a gain in a year with little or no other income (for example, taking a gap year) means the gain is taxed starting from the tax-free threshold rather than stacked on top of full-time income, substantially reducing the tax payable.

Both Dom and Damien caution against the common advice to simply "sell a property and pay off debt" without properly factoring in the resulting CGT liability, describing it as often the single largest cost in a sale, larger than the agent's commission. Dom also notes that any unused capital losses (from shares, managed funds, or even a formally realised cryptocurrency loss) can be used to offset a property capital gain in the same year, and recommends checking for any forgotten losses before finalising a sale.

A Real Example: Selling an Underperforming Unit to Reallocate

Damien shares a past client example: a Sydney unit that declined by roughly $120,000 in value over 10 years due to significant local oversupply. The client sold it, realising a large carried-forward capital loss, which was then available to offset a capital gain on a separate, better-performing property, illustrating how tracking and using historical losses can meaningfully affect the overall tax outcome of restructuring a portfolio.

Land Tax: A Detailed NSW Example

Dom walks through a detailed example of how land tax is calculated for two co-owners in New South Wales, using a couple who jointly own one property (Property A, held 50/50, land value $1.4 million) while one of them (Person A) separately owns a second property alone (Property B, land value $700,000).

The partnership itself is first assessed on the combined $1.4 million in land value, above the NSW threshold (around $1,075,000 in this example), producing a base tax of around $5,000 plus a $100 levy, a total assessment of $5,300 issued to the partnership as a whole, not proportionally split between the two owners individually at this stage.

Each owner is then assessed individually. Person B, who owns nothing else, is assessed on their $700,000 share, which sits below the individual threshold, so no further tax is owed beyond their effective half of the original $5,300 partnership bill (a scenario where they've effectively been taxed despite their own holding alone falling under the threshold). Person A, who separately owns the additional $700,000 property, is assessed on a combined $1.51 million in land value, resulting in an $18,100 total liability, before a deduction is applied for tax already paid via the partnership assessment.

Dom explains the deduction is calculated two ways (the actual amount already paid via the partnership, or a proportional share based on how much of the owner's total land holdings the taxed property represents), with the smaller of the two figures applied as the deduction, in this example, $2,600, leaving Person A with an additional bill of $15,450. Dom notes the state authority frames this as avoiding double taxation, though acknowledges Person B, in this example, has effectively paid land tax on a share of property that would have sat under the threshold entirely if owned outright alone.

Dom flags this can arise unexpectedly for jointly held inherited property, particularly once it's converted to a rental (since the capital gains tax exemption tied to a deceased person's principal residence has a limited window), and notes land tax thresholds and rules vary by state, so investors should check the specific rules for whichever state a property sits in. He also confirms NSW land tax thresholds have been deliberately left unindexed for a period, meaning more property owners are drawn into paying it over time even without genuine growth in relative terms, and that discretionary trusts in NSW have no tax-free threshold at all, taxed from the first dollar.

Diversifying Across States to Manage Land Tax

Both note that borderless investing, spreading purchases across multiple states rather than concentrating in one, naturally helps manage land tax exposure, since an investor could hold a property in six or seven different states before meaningfully triggering land tax liabilities anywhere, alongside the more commonly cited benefit of accessing stronger growth markets outside their home state.

Cross-Guarantees and Borrowing Risk

Dom raises a further risk of co-ownership: many lenders apply cross-guarantees, meaning each owner becomes responsible for the other's share of the debt if the other party can't meet their repayments, a risk not always well understood upfront. He also confirms that when a co-owner later wants to borrow independently for a separate purchase, lenders will typically count the full existing joint debt but only a partial share (commonly 50%) of the associated rental income toward serviceability, which can significantly constrain future borrowing capacity.

Loan Splitting: A Real Worked Example

Dom presents a detailed worked example illustrating how loan structuring alone, without changing anything else about a property, can meaningfully affect a couple's combined tax outcome. Two co-owners (on different marginal tax rates, 39% and 18%) jointly hold a $650,000 loan.

Scenario 1 (single joint loan): interest must be split 50/50 regardless of individual repayment behaviour, producing a combined tax benefit of around $5,600 in the first year, but by the time the loan has been paid down to $350,000 (split evenly, $175,000 each), the combined tax benefit has fallen to just $441, since both owners' individual interest costs (and therefore deductions) have shrunk proportionally.

Scenario 2 (two separate loans from the outset): the same $650,000 is split into two individual $325,000 loans from the start. The higher-income owner keeps their loan interest-only, while the lower-income owner pays theirs down aggressively (principal and interest), so that by the time the combined balance again reaches $350,000, the higher-income owner still holds most of the debt (and therefore most of the deduction), while the lower-income owner's much smaller remaining loan has actually gone cash-flow positive. Because the higher-income owner's tax saving on their larger deduction is calculated at a much higher marginal rate than the tax owed by the now-positively-geared lower-income owner, the combined household benefit comes to around $2,300, more than five times higher than Scenario 1's $441, despite the total loan balance and total interest paid across the household being identical in both cases.

Dom's takeaway: something as simple as requesting two separate loans instead of one joint loan, a conversation most brokers won't proactively raise, can be worth thousands of dollars a year in tax efficiency, particularly once co-owners are on meaningfully different incomes or have different debt-reduction goals (for example, one closer to retirement wanting positive cash flow sooner, the other content to remain interest-only and build savings elsewhere).

Understanding "After-Tax" Interest Rates

Dom encourages investors to think in terms of an effective after-tax interest rate: an investment loan at 6.5% with a 39% tax deduction effectively costs closer to 4%, a distinction he says many investors overlook when deciding which debt to prioritise paying down, sometimes mistakenly paying down cheaper, deductible investment debt ahead of more expensive, non-deductible home loan debt.

Getting Tax Benefits Progressively (PAYG Variation)

Dom explains investors can apply for a PAYG withholding variation (formerly known as a 221D variation) to have their expected negative gearing benefit spread across each pay cycle throughout the year, rather than waiting for a single lump-sum refund at tax time. He notes this doesn't change the total benefit received, only its timing, and can be useful for investors with tighter cash flow, while acknowledging some people prefer the lump-sum "forced saving" effect of waiting for the annual refund instead.

A Full Gearing Example Over Time

Dom walks through a modelled two-year-interval example: a $500,000 property (60% land value, 80% LVR, a 4% yield, 6.5% interest rate, minimal expenses) starting out negatively geared by around $22,000 every two years (before tax benefit), reduced to a real after-tax cost of around $13,000 every two years at a 39% tax rate. Using a modest growth assumption (5% per annum), the same interest-only property gradually moves from negative to positive gearing purely through rental growth, crossing into positive cash flow territory somewhere around year 10–12, at a property value of roughly $885,000, without a single dollar of the loan being paid down.

Adjusting the growth assumption upward (to 7.5% per annum) brings this crossover point forward, since faster capital growth also tends to come with faster rental growth. Dom also models the effect of simultaneously paying down $1,000 a month in principal: this temporarily deepens the investor's out-of-pocket cost in the earlier years (since they're now both funding a larger shortfall and paying down principal), but accelerates the eventual shift to a genuinely positive, debt-reducing position later on.

Dom's broader point: an interest-only loan paired with disciplined use of an offset account (directing surplus income there rather than into principal repayments) can achieve a similar debt-reduction effect while preserving flexibility, and that a single well-selected investment property, combined with an owner-occupied home and standard superannuation, can be entirely sufficient for many investors' retirement goals, rather than needing an extensive portfolio.

Closing Thoughts

Damien and Jeremy thank Dom for the detailed walkthrough and note the next episode in the series will cover trusts versus companies as ownership structures.