Entity, Debt Structuring & Tax Context
The lending system does not assess borrowers alone — it assesses legal structures. How a property is owned, how debt is arranged, and how income flows through an entity materially change what is possible within the system.
This framework explains why:
- identical borrowers receive different outcomes depending on structure
- some equity can be accessed while other equity is permanently locked
- interest-only loans are treated differently to principal and interest
- tax position influences but does not override lending rules
What This Framework Controls
Entity, Debt Structuring & Tax Context determines:
- which legal entities can borrow
- how income is recognised
- whether equity can be released
- acceptable loan products and terms
- exit flexibility and refinancing options
It acts as a constraint layer over all other pillars.
Ownership Structures Matter
Common ownership entities include:
- individuals (personal names)
- trusts
- companies
- self-managed super funds (SMSFs)
Each entity is assessed under a different rule set.
The system does not “look through” entities for convenience — it applies entity-specific policy.
Personal Name Lending
Personal name lending offers the greatest flexibility.
Key characteristics:
- widest lender availability
- highest maximum LVRs
- ability to release equity via refinancing
- simpler exit and restructuring
This flexibility is why personal ownership remains dominant.
Trust and Company Structures
Trusts and companies introduce complexity.
System considerations include:
- identification of beneficiaries and controllers
- treatment of distributed vs retained income
- additional documentation requirements
- narrower lender panels
- the ability of the lender to understand and allow the flow of money within the structures
While useful for asset protection or tax planning, these structures reduce lending flexibility.
SMSF Lending Constraints
SMSF lending operates under a distinct framework.
Key structural rules include:
- non-recourse lending
- higher deposit and liquidity requirements
- prohibition on residential owner-occupation unless business real property( and its occupied by the business)
- inability to release equity
From a system perspective, SMSF property is a closed environment.
Growth does not restore borrowing power.
Good Debt vs Bad Debt Logic
The system distinguishes between:
- non-deductible debt (typically owner-occupied)
- deductible debt (typically investment)
This distinction influences:
- loan product selection
- interest-only eligibility
- long-term structuring decisions
Tax efficiency is considered — but risk still dominates.
Interest Only vs Principal & Interest
Interest-only lending:
- preserves cash flow
- maintains higher deductible balances
- is typically restricted to investment purposes
- can end up like a giant credit card
Principal & interest:
- reduces debt over time
- improves long-term resilience
- is often required for owner-occupied lending
The system applies different risk assumptions to each.
Cross-Collateralisation Risk
Cross-collateralisation occurs when:
- multiple properties secure a single loan or facility
While it may simplify initial lending:
- it reduces flexibility
- complicates sales and refinancing
- links risk across assets
The system permits it — but does not optimise for it.
Exit Strategy Is a Structural Consideration
How a loan can be exited matters at entry.
The system evaluates:
- whether assets can be sold independently
- whether equity can be released
- how structures adapt to life changes
Poor structuring decisions often become irreversible.
Why Structuring Outcomes Surprise Borrowers
Borrowers are often surprised because:
- tax logic does not override lending policy
- equity exists but cannot be accessed
- entity flexibility differs dramatically
- early structuring choices persist for decades
These outcomes are systemic, not accidental.
How This Framework Interacts With Other Pillars
Entity and structuring directly influence:
- Income & Serviceability (how income is counted)
- Equity & Deposit (risk layering)
- Security Acceptability (use and control)
Entity choice defines the rulebook applied.
What This Page Is — and Is Not
This page explains how legal entities and debt structures are treated within the Australian lending system.
It does not:
- provide tax advice
- recommend ownership structures
- assess individual suitability