Title: Does Buying Through a Trust or Company Affect Your Borrowing Capacity?

When considering how to purchase an investment property in Australia, many investors weigh up whether to buy in their personal name, through a family trust, or via a company. While tax planning and asset protection often drive this decision, an equally critical consideration is how your chosen structure impacts borrowing capacity.

1. What is Borrowing Capacity?

Borrowing capacity refers to the amount a lender is willing to lend you based on your income, expenses, debts, and overall risk profile. When assessing loan applications, lenders consider factors such as your ability to repay, the income generated from the asset, and the structure used to hold the asset.

2. Buying in Your Own Name

Buying in your own name typically offers the highest borrowing capacity. That’s because:

• Most lenders are comfortable assessing personal income and expenses.
• Individual tax returns are simple to evaluate.
• Negative gearing benefits can be directly factored into serviceability.

Pros:

• Simpler application process
• Greater lender options
• Higher borrowing power in most cases

Cons:

• Fewer asset protection benefits
• Potential estate planning limitations

3. Buying Through a Family Trust

Family trusts are popular for asset protection and tax flexibility, but they can reduce borrowing power.

Why?

• Trust income is considered discretionary, and not guaranteed to the borrower
• Most lenders assess trust applications more conservatively
• Additional documentation is required (trust deed, tax returns, distribution statements)

Pros:

• Asset protection
• Income splitting for tax benefits
• Long-term estate planning advantages

Cons:

• Lower borrowing capacity
• Fewer lenders willing to lend to trusts
• Slower loan approval process

4. Buying Through a Company

Using a company to purchase property can offer some tax advantages, but comes with its own borrowing constraints.

Why?

• Companies don’t have personal income; serviceability must be demonstrated through business income
• Directors often need to provide personal guarantees
• Some lenders limit the types of loans available to company borrowers

Pros:

• Fixed company tax rate (currently 25% for base rate entities)
• No capital gains discount, but easier to retain profits

Cons:

• Reduced borrowing capacity
• Stricter lending criteria
• Higher compliance and ongoing admin costs

5. Strategies to Improve Borrowing Capacity in a Trust or Company

• Work with a mortgage broker experienced in complex structures
• Provide full financials and tax documentation
• Consider lenders with tailored products for trusts and companies
• Show a consistent history of income and profit distributions

Conclusion

While buying in a trust or company can offer long-term strategic benefits, it almost always results in lower borrowing capacity compared to personal ownership. It’s essential to align your structure choice with both your investment goals and your ability to secure finance.

For most investors, consulting both a financial advisor and a mortgage broker early in the planning process can help ensure the structure supports—not hinders—your borrowing power.