Common Mistakes When Borrowing in a Company Name

Borrowing through a company to purchase investment property sounds like a clean way to separate business and personal assets, but the lending rules and tax treatment are different from what most investors expect.

Why Company Borrowing Isn't Treated Like Personal Lending

Lending to a company is classified as commercial lending, not residential consumer credit. That classification removes the protections built into the National Consumer Credit Protection Act, including hardship provisions that apply to individual borrowers. Lenders also apply different serviceability tests. Rather than assessing your personal income and expenses, they look at the company's financial position, which can limit the loan amount if the entity is newly established or holds limited trading history.

Consider an investor setting up a new company to purchase a rental property in Morwell. The entity has no trading history and no income apart from projected rent. The lender will require director guarantees, but serviceability is still calculated on the company's ability to service the debt from rental income alone. If the vacancy rate in the area runs high for several months, the company's cashflow weakens, and you cannot top up repayments from your salary in the same way you could with a loan in your personal name without formally lending funds to the company or increasing your guarantee exposure.

Lenders also price company loans differently. Investment loans for individuals typically sit within the residential mortgage book, with rates reflecting the lender's cost of capital for housing credit. Company loans are assessed under commercial credit risk frameworks, which often attract a margin above standard residential rates or require structuring as a line of credit rather than a traditional mortgage.

How Capital Gains Tax Treatment Changes from 1 July 2027

Companies do not receive the capital gains tax discount that individuals, trusts and partnerships access on residential property held longer than 12 months. Individuals currently receive a 50 per cent discount on gains accruing before 1 July 2027. From 1 July 2027, individuals can index the cost base of their property by inflation and pay tax only on real gains, with a 30 per cent minimum rate applying to the indexed portion. Companies pay the full 25 per cent or 30 per cent company tax rate on the entire nominal gain without any discount or indexation relief.

That difference compounds over time. If a property purchased for $400,000 sells for $600,000 after ten years, an individual applying cost base indexation might have a taxable gain well below $200,000, depending on inflation over the period. The company pays tax on the full $200,000 gain at the company rate. If the investor then extracts the profit as a dividend, the distribution is taxed again in their personal hands, though franking credits offset some of that burden.

The structure works when the intention is to hold property long-term within a trading entity that can distribute franked dividends to shareholders in lower tax brackets, or where asset protection and succession planning outweigh the tax cost. It rarely works for investors buying a single residential property with the intention to sell within a few years and distribute the proceeds.

Negative Gearing and Interest Deductibility Under the New Framework

Companies are not subject to the negative gearing restrictions introduced for individuals from the 2027-28 income year. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, individuals who acquire established residential investment properties after 12 May 2026 can only offset rental losses against income from other residential properties. Companies can continue to offset rental losses against any company income, including trading income from other sources.

That makes the structure more appealing where the company operates an active business and can absorb rental losses against other assessable income. If the company exists solely to hold the investment property and generates no other income, the rental loss sits unused unless carried forward to offset future rental profits or a capital gain on disposal.

Interest on borrowings used to acquire the property remains deductible for the company, just as it does for individual investors, provided the property is rented or genuinely available for rent. The difference is where that deduction can be applied. Investors also need to account for the higher interest cost that often applies to company lending when running the numbers on cashflow and tax efficiency.

Lenders Mortgage Insurance and Loan to Value Ratio Limits

Lenders Mortgage Insurance is calculated differently for company borrowers, and some lenders will not offer LMI on commercial or corporate lending at all. That typically caps the available loan to value ratio at 80 per cent, meaning a 20 per cent deposit is required regardless of the borrower's financial position. For individual borrowers, LMI allows lending up to 95 per cent LVR in some cases, though investment loan products are more commonly capped at 90 per cent.

Under APRA's Prudential Standard APS 112, lenders must hold higher capital against investment loans than owner-occupied loans, and the risk weight increases further for interest-only loans and loans above 80 per cent LVR. Company loans assessed as commercial exposures sit outside the residential mortgage risk-weighting framework entirely, and the lender's capital treatment depends on whether the loan is secured by residential property and whether director guarantees are in place. The practical result is fewer lenders willing to advance more than 80 per cent of the property value when the borrowing entity is a company.

Debt-to-income lending limits introduced by APRA in February 2026 apply separately to owner-occupier and investor lending portfolios for authorised deposit-taking institutions. Each lender can advance up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or more. Company loans are assessed on the company's income, not the director's personal income, which can make it harder to meet serviceability thresholds even where the director guarantees the debt.

When the Structure Works and When It Doesn't

A company structure makes sense when the investor operates a trading business through the same entity and wants to consolidate property and business assets under one balance sheet, or where the investor plans to build a portfolio of multiple properties and wants to separate liability from personal assets. The structure also suits investors in higher tax brackets who can benefit from the 25 per cent or 30 per cent company rate on rental income, provided they do not need to extract profits as dividends immediately.

It does not suit investors purchasing a single property with a small deposit who expect to rely on personal income to cover shortfalls during vacancy periods. The lack of consumer credit protections, the higher interest cost, the deposit requirement and the inability to claim the CGT discount or indexation on disposal all reduce the appeal. Investors in that position are usually in a stronger position borrowing in their personal name or through a discretionary trust with individual trustees.

Gippsland investors looking at commercial property in Traralgon or Warragul, rather than residential investment property, should note that commercial loans are structured differently again, with shorter loan terms and different serviceability criteria. The decision to borrow in a company name is not just a tax decision. It affects the loan products available, the interest rate, the deposit required, the recourse the lender has in default, and your ability to access hardship arrangements if circumstances change.

Call one of our team or book an appointment at a time that works for you. We'll review your structure, your borrowing capacity and the lenders who will consider your application before you commit to a particular entity or loan product.

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