BEST RENTAL PROPERTY OWNERSHIP STRUCTURE

Best rental property ownership structure: is there such a thing? Although not exhaustive, this article gives an overview of the four most commonly-used structures and their pros and cons. Many clients ask us, “what’s the best structure for my investment property?” So we’ve set out the key considerations below. Worked examples show how the numbers play out under each option.

30-Second Read

• LTC: income or losses flow through to shareholders based on shareholding, and the LTC itself pays no tax. Rental losses are ring-fenced, though — they can only offset other rental income, not wages or salary. More info here.
• Standard company: can distribute profits, but not losses. Suits investors on higher tax brackets whose property is genuinely profitable, taxed at a flat 28%. More info here.
• Trust: also distributes profits but not losses, currently taxed at 33%. That’s rising to 39% from 1 April 2024. A lower rate stays for trusts with income under $10,000 once the change takes effect. More info here.
• Partnership: similar to an LTC, but distributions follow ownership percentages on the property title rather than shareholdings. More info here.
• None of these is universally “best.” The right choice depends on whether your property is profitable or running at a loss, and which tax bracket you’re in. It also depends on what you need the structure to do beyond tax — liability protection, estate planning, or flexibility for a partner on a different income.

 

LTC / Look-Through Company

Look-Through Companies have been regularly used in recent years for ownership of rental investment property. All income or loss is distributed based on shareholdings. If the LTC makes a profit of $1,000, and Bob and Mary each hold 50 of the 100 total shares, Bob declares $500 income on his personal tax return. Mary declares the same amount. The LTC itself pays no income tax.

The same applies if the LTC makes a loss. If the LTC loses $1,000, Bob and Mary each declare a $500 loss personally.

Note, though, that losses from residential rental property have been ring-fenced since the 2019–20 financial year. That means the loss can’t be offset against your wages or other non-rental income. It can only offset other rental residential income. Excess losses carry forward to the following financial year.

Worked example — a loss year

Say the same LTC runs at an $8,000 loss instead, split evenly between Bob and Mary. Each declares a $4,000 loss personally. If Bob also owns a second rental property in his own name that’s turning a profit, his $4,000 LTC loss can offset that profit directly. If Mary has no other rental income at all, her $4,000 loss simply carries forward. It waits for a future year when the LTC — or another rental she holds — turns a profit to absorb it against.

Distributions can be changed by changing the shareholdings, but this will often trigger bright-line implications for the shares transferred, and can carry tax consequences if too many shares change hands. See changing shares in LTCs for a more detailed look.

Liability and control

An LTC keeps its identity as a proper company under general company law. Shareholders get the same limited liability protection as with a standard company, while still being taxed as though the LTC were a partnership. That combination is a big part of why LTCs have become the default starting point for a lot of investors. You get legal separation from personal assets, without losing the ability to use rental losses on your own return.

Company

Standard companies can distribute profits to shareholders, but not losses. This means:

1. If you’re in a higher tax bracket, and
2. Your rental property runs at a profit,

a standard limited liability company could be the right structure for you. Profits are taxed at a flat 28%. That could meaningfully reduce the tax on your rental income compared to your personal marginal rate.

Worked example

Say a rental property held in your own name generates $30,000 of taxable profit for the year, and you’re in the top personal tax bracket (39%). Taxed personally, that’s $11,700 in tax. Held through a standard company instead, the same $30,000 is taxed at a flat 28% — $8,400. That’s a $3,300 annual saving, purely from the structure, with nothing else about the property changing. This matches the top end of the 2%–11% range mentioned above. The exact saving depends on which personal bracket you’d otherwise be taxed at.

If your rental property runs at a loss and looks likely to continue that way, though, this is probably not the right structure. Losses will most likely be trapped in the company, unable to offset rental income earned personally or through another entity. They simply carry forward to the following year instead.

The same considerations around changing shareholdings apply to standard companies as to LTCs.

Ongoing compliance

A standard company also carries more formal compliance obligations than personal ownership. That’s annual financial statements, a company tax return separate from your own, and directors’ duties under the Companies Act. Worth factoring that additional accounting cost into whether the tax saving is genuinely worthwhile.

Trust

Like standard companies, trusts can distribute profits to beneficiaries, but not losses. So:

1. If you’re in a higher tax bracket, and
2. Your rental property runs at a profit,

a trust could suit you. Currently, trust income is taxed at a flat 33%. That’s changing, though — the trustee tax rate is set to rise to 39% during 2024, aligning it with the top personal rate. Once that change takes effect, trusts with income under $10,000 a year will retain the lower 33% rate; above that threshold, the 39% rate will apply.

Worked example, under current rates

Take the same $30,000 rental profit from the company example above, this time held in a trust. At the current 33% trust rate, that’s $9,900 in tax — a $1,800 saving compared to the 39% personal rate, or 6 percentage points. That’s the saving referenced in the 30-second summary above. It’s worth being clear-eyed, though, that this specific advantage is time-limited. Once the trustee rate rises to 39% during 2024, a trust earning more than $10,000 will no longer offer this particular saving over personal ownership at the top rate. The two rates will simply match.

A trust can still distribute rental income to a beneficiary, but that income can’t be offset against a personal rental loss elsewhere.

Now you may be asking: why not just use a standard company, given its lower 28% flat rate? Often, it comes down to asset protection. Or it may be about distributing income to beneficiaries who can take advantage of their own lower personal tax rates. Trustees have considerably more flexibility in how they distribute than a company’s shareholder payment rules allow. A trust is also frequently used for reasons that go well beyond this year’s tax bill. Protecting assets from future relationship property claims is one common reason. Planning for how property passes to the next generation, or keeping a family home separate from a higher-risk business activity, are others.

As with a company, if your rental property runs at a loss and looks likely to stay that way, then this is likely not the right structure. Why? For the same reasons as a standard company: those losses will most likely be trapped in the trust. They can’t be offset against rental income earned in personal name or in another entity, and are carried forward to the following financial year instead.

Partnership

There are really two versions of this worth distinguishing. Many rental properties are simply co-owned by two or more people — a couple, or siblings, buying together in their own names — without any formal partnership structure at all. This informal co-ownership arrangement doesn’t need its own IRD number: each owner simply declares their share of the rental income and expenses directly on their own personal tax return, based on their ownership percentage.

A formal, registered partnership is different. It’s a distinct entity with its own IRD number, filing its own Partnership income tax return (IR7) each year to allocate profit or loss out to the partners, who then declare their share on their own personal return. This is more setup than most simple two-person co-ownership arrangements need, but it can suit larger or more complex arrangements — more than two or three parties, or where a formal partnership agreement is genuinely needed to govern how the arrangement works.

Either way, the split between owners works similarly to an LTC in how income and losses are divided. For informal co-ownership, that split follows the ownership percentage on the property title — but that percentage needs to be specifically stated in the Sale and Purchase Agreement itself for it to actually govern the split. IRD’s position on this has been tested and confirmed by the Taxation Review Authority: if no percentage is specified in the agreement, the default is equal shares between however many parties are involved — 50/50 for two people, one-third each for three, and so on — regardless of how much each party actually contributed towards the deposit.

Worked example

Say two siblings buy a rental property together as informal co-owners, contributing unequal amounts to the deposit, and specify a 60/40 split directly in their Sale and Purchase Agreement to reflect that. A $20,000 profit splits $12,000 and $8,000 respectively, each declared on their own personal return at their own tax rate. If the property instead runs a loss, the same 60/40 split applies to that loss, and — like the LTC — it can offset other rental income each owner holds personally, subject to the same ring-fencing rules.

What happens if they don’t specify a split

Say the same two siblings contribute unevenly to the deposit but never state a percentage in the Sale and Purchase Agreement. Regardless of who actually put in more money, the default 50/50 split applies — a $20,000 profit is declared as $10,000 each, not in proportion to their original contributions. Getting the percentage properly documented upfront, before settlement, is genuinely worth the legal attention it requires.

That percentage can be changed after the fact, but doing so carries tax and legal implications, and any agreement wording would need to be considered. Here too, you must be careful that distributions are not done purely for tax reasons, as this leaves you open to accusations of tax avoidance.

Setting Up and Ongoing Costs

Tax treatment is only part of the picture — each structure also carries different costs to establish and maintain, worth weighing against whatever tax saving it offers.

Personal ownership has effectively no setup cost and the lightest ongoing compliance — your rental simply gets reported on your own personal tax return each year.

An LTC requires incorporating a company with the Companies Office, plus an LTC election with IRD. Ongoing, it needs annual financial statements and its own tax return, even though the LTC itself pays no tax directly. The compliance burden sits closer to a standard company than to personal ownership, despite the tax treatment flowing through like a partnership.

A standard company carries the same incorporation and annual compliance requirements as an LTC. It also files its own income tax return, where the company genuinely pays tax at the 28% rate, rather than passing it through.

A trust typically involves the highest setup cost of the four, given the legal work involved in drafting a trust deed properly. Ongoing, it needs its own annual accounts and tax return, and increasingly needs to meet the disclosure requirements introduced for trusts in recent years.

A partnership sits closer to personal ownership in simplicity. No incorporation is required, though a properly drafted partnership agreement is worth the legal cost if the ownership split isn’t a simple even share.

None of these costs should be the deciding factor on their own. They’re worth factoring into whether a structure’s tax saving is genuinely worth pursuing, though, particularly for a smaller or highly-geared property where the extra compliance cost could outweigh the benefit.

Comparing the Four Structures

	Can distribute losses?	Current tax treatment	Liability protection
LTC	Yes, to shareholders	Flows through at each shareholder’s personal rate	Yes, as a company
Standard company	No — trapped in company	Flat 28%	Yes
Trust	No — trapped in trust	Flat 33% (rising to 39% during 2024, except under $10k)	Depends on trust deed and trustee structure
Partnership	Yes, to partners	Flows through at each partner’s personal rate	No — partners are personally liable

How to Think About the Decision

Two questions do most of the work in narrowing this down:

Is the property likely to run at a profit or a loss? If you expect losses, especially in the early years of ownership, an LTC or partnership is usually the stronger starting point, since both let those losses flow through to your personal return (subject to ring-fencing). A company or trust risks trapping those losses where they can’t help you.

What tax bracket are you in, and does that differ from a co-owner’s? A company or trust can meaningfully reduce the tax bill, if you’re in a high personal bracket and the property is genuinely profitable. That advantage only holds while the profit continues. It’s also limited to the extent the entity’s flat rate genuinely sits below your marginal rate.

Beyond tax, liability protection matters just as much as this year’s numbers. So does what you actually want the structure to achieve long-term — simplicity, asset protection, or a vehicle for eventually passing the property on.

Checklist

• ✅ Confirm whether your property is currently profitable, or running at a loss, since that alone rules certain structures in or out
• ✅ Check which personal tax bracket you (and any co-owner) sit in, since the tax-saving case for a company or trust depends heavily on this
• ✅ If considering a trust, factor in the trustee rate change to 39% taking effect during 2024, and how that changes the calculus for trusts earning over $10,000
• ✅ Don’t change shareholdings or ownership percentages purely for tax reasons, without getting advice first
• ✅ Weigh liability protection and long-term goals (asset protection, succession) alongside the tax numbers, not instead of them
• ✅ Get both accounting and legal advice before settling on a structure — this decision is genuinely harder to unwind later than to get right upfront

Common Questions

Is an LTC always the best choice? Not always — it depends on whether your property is profitable and what tax bracket you’re in. An LTC’s real strength is that losses flow through to you personally, which a standard company or trust can’t do.

What happens to losses in a company or trust if the property isn’t profitable? They generally get trapped in the entity. They carry forward to future years, rather than offsetting your personal income.

Can I just change shareholdings to save tax? Not purely for tax reasons — this risks a tax avoidance challenge, and can also trigger bright-line implications for the shares involved. Get advice before making any change.

Do I need to register a formal partnership to co-own a rental with someone else? Not for a straightforward arrangement — most people simply co-own in their own names, with each person declaring their share on their own personal return, and no separate IRD number required. A formal, registered partnership with its own IRD number and IR7 return is more relevant for larger or more complex arrangements.

Do I need to specify the ownership split in writing? Yes — specifically in the Sale and Purchase Agreement itself, confirmed by a Taxation Review Authority decision on IRD’s position. Without a stated percentage, the split defaults to equal shares regardless of actual contributions: 50/50 for two owners, one-third each for three, and so on.

Can I use different structures for different properties? Yes — there’s no requirement to hold every property the same way. Some investors use an LTC for a negatively-geared property and a company or trust for one that’s genuinely profitable, matching the structure to each property’s actual position.

What if my circumstances change after I’ve chosen a structure? It’s possible to restructure later, but it isn’t free. Changing ownership can trigger tax and legal costs, and potentially bright-line consequences. It’s worth choosing with your likely medium-term situation in mind, not just where things stand today.

Further Reading & Help

You might also want to read our other articles that go into more depth:

• Trust vs LTC for Residential Investment Property
• Should You Form an LTC to Own Your Rental Investment Property?
• Rental Investment Properties & LTCs – A Good Match?

Get Advice for Your Situation

Every property, and every owner’s tax position, is different — the structures above are a starting point, not a substitute for advice specific to you. Contact our experienced team on 0800 890 132, or click below to get in touch.