What Are the Risks of Borrowing in a Company Name?

Borrowing in a company name to purchase residential investment property may limit your ability to claim interest deductions against personal income and restrict access to capital gains tax concessions available to individual investors.

Many periodontists consider a company structure when expanding their investment holdings, often to separate practice assets from personal investments or to manage succession planning. The decision turns on whether the flexibility and asset protection benefits of a corporate entity outweigh the tax and lending constraints that follow. For most residential property investors, those constraints are considerable.

How Company Borrowing Affects Negative Gearing

A company cannot negative gear residential property losses against your personal income. From the 2027-28 income year, losses related to established residential investment properties acquired after 12 May 2026 are deductible only against other residential property income, regardless of whether the owner is an individual or a company. For properties acquired before that date, individuals can still offset losses against salary and other income. A company cannot, because a company's income is separate from yours. Even for grandfathered properties, a company's rental losses remain trapped within the company and can only offset the company's other income, which for many holding companies is limited or nil.

Consider a periodontist who acquires a two-bedroom apartment as a long-term hold. If purchased in their personal name before 12 May 2026, rental losses reduce taxable income and generate a refund at their marginal rate, which may be 47 per cent including Medicare Levy. If purchased in a company name, those same losses sit unused or offset company income taxed at 25 or 30 per cent, depending on whether the company qualifies as a base rate entity. The difference in after-tax cash flow can be several thousand dollars per year.

Capital Gains Tax Treatment for Companies

Companies do not receive the 50 per cent capital gains tax discount available to individuals, trusts and partnerships. When a company sells an investment property, the entire gain is taxable at the company tax rate. For individuals, gains on assets held longer than 12 months are taxed at half the usual rate. From 1 July 2027, individuals also have access to cost base indexation and a choice of discount or indexation for eligible new builds. Companies receive none of these concessions.

In a scenario where a property purchased for $600,000 is sold for $900,000 after holding costs, an individual with a marginal rate of 47 per cent pays tax on $150,000 of the gain after applying the discount. A company holding the same asset pays tax on the full $300,000 gain at 25 or 30 per cent. The company's tax bill is higher in dollar terms, and distributing the remaining gain to shareholders may trigger further tax depending on franking credits and individual circumstances.

Why Lenders Treat Company Investment Loans Differently

Lenders assess company borrowing under commercial or corporate lending policies, not consumer credit regulations. Residential investment loans in a company name sit outside the National Consumer Credit Protection Act, which means the financial hardship provisions available to individuals do not apply. Most lenders also apply a higher risk weighting under Prudential Standard APS 112 because the company structure reduces transparency around ultimate beneficial ownership and repayment capacity.

Interest rates on company loans are often higher than rates for individual borrowers, and loan-to-value ratio limits are typically lower. Lenders may cap company lending at 70 or 80 per cent LVR where they would lend to an individual at 90 or 95 per cent with lenders mortgage insurance. Some lenders will not offer residential investment lending to companies at all, particularly where the company is a special purpose vehicle with no trading income.

Personal guarantees are standard. The guarantee removes much of the asset protection benefit periodontists expect from a company structure, because the lender retains recourse to personal assets if the company defaults. Directors are also jointly and severally liable, which complicates ownership structures involving multiple investors.

When a Company Structure Makes Sense for Property Investment

A company structure becomes relevant when the investment is commercial property rather than residential, when the investor is acquiring multiple properties and expects to generate positive company income within a few years, or when the property is part of a broader business structure such as a premises owned by a practice entity.

It also suits investors who plan to retain properties indefinitely and distribute rental income rather than realising capital gains. Franking credits can make income distribution tax-effective for some shareholders, particularly where the shareholder's marginal rate is below the company rate. For periodontists in accumulation phase with income above the top marginal threshold, this is uncommon.

For residential property acquired as a passive investment to build wealth over time, an individual or trust structure almost always provides better access to investment loan options and preserves tax concessions that a company cannot access. If asset protection is the concern, other structures including discretionary trusts and insurance may achieve the same outcome without sacrificing deductibility and capital gains treatment.

Refinancing and Exit Constraints

Moving a property out of a company and into personal ownership triggers a sale and purchase for tax and stamp duty purposes. Duty is calculated on the market value at the time of transfer, and capital gains tax is payable by the company on the difference between the transfer value and the original cost base. Even if no cash changes hands, the transaction is treated as a disposal at market value.

This makes it difficult to unwind a company structure once the property is purchased. If lending policy changes or if you want to access a lower rate available only to individual borrowers, refinancing the investment loan requires either continuing with the company as borrower or incurring the tax and duty cost of a transfer. For properties held long-term with significant unrealised gains, that cost can exceed six figures.

Periodontists often establish a company structure in the early stages of wealth accumulation, expecting to build a portfolio within that entity. What they encounter instead is a mismatch between the company's income, the lender's policies, and the investor's ability to scale. The structure that seemed protective in year one becomes a constraint by year three.

Taking the time to model the tax, cash flow and refinancing outcomes for both individual and company ownership, using realistic rental income and growth assumptions, is a necessary step before signing any loan application. Call one of our team or book an appointment at a time that works for you.

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