Holding investment property through a trust is a strategy used by many experienced Australian property investors — but it comes with a specific set of trade-offs that make it the right choice for some and wrong for others.
This guide explains exactly what a family trust is, how property held in a trust is taxed, the asset protection benefits, the significant downsides (especially land tax), and when the strategy makes sense.
What Is a Trust for Property Investment?
A trust is a legal structure where one party (the trustee) holds and manages assets for the benefit of another party (the beneficiaries). The trustee controls the trust but doesn’t personally own the assets.
For property investment, the most common structure is a discretionary family trust (sometimes called a family trust), where:
- The trustee (usually an individual or a company) holds the property on behalf of the trust
- Beneficiaries are typically family members — spouse, children, parents
- The trustee has discretion to decide how income and capital gains are distributed among beneficiaries each year
This discretion is the central tax advantage: you can distribute rental income and capital gains to the beneficiaries with the lowest taxable income, minimising the total tax paid across the family group.
How Property Trusts Work: The Basics
Setting Up a Discretionary Trust
A discretionary trust is created by a trust deed — a legal document setting out the rules of the trust, who the trustee is, and who the potential beneficiaries are.
Cost: typically $1,500–$3,000 in legal fees to establish properly. Don’t use DIY trust deed kits for property — the deed needs to be carefully drafted by a solicitor.
The Trustee
The trustee is the legal owner of the property. It appears on the title as: “[Trustee Name] as trustee for [Trust Name]”.
You can use:
- An individual as trustee: Simpler and cheaper, but offers no asset protection (the trustee’s personal assets can be at risk if the trust is sued).
- A corporate trustee (a company set up specifically to act as trustee): More expensive (company setup + ongoing ASIC fees) but provides significantly better asset protection and is best practice for most property trusts.
Borrowing in a Trust
Most major banks will lend to trusts, but the trustee and any guarantors typically need to personally guarantee the loan. This means the trust’s asset protection benefits can be partly negated if you have to personally guarantee a large debt.
Loan terms and LVR limits are often slightly less favourable for trust structures than for individual borrowers.
The Tax Advantages of Holding Property in a Trust
1. Income Splitting
Rental income generated by the trust property can be distributed to any beneficiaries at the trustee’s discretion each financial year.
Example: Trust earns $32,000 in net rental income. Trustee distributes $16,000 to spouse A (earns $180,000 — 45% rate) and $16,000 to spouse B (earns $45,000 — 19% rate).
Without a trust: all $32,000 would be added to the highest earner’s income, taxed at 45% = $14,400 tax.
With a trust, distributed optimally: the combined tax is approximately $3,040 + $5,200 = $8,240 — saving over $6,000 per year on tax.
2. Capital Gains Tax Splitting
When the trust sells a property that’s been held more than 12 months, the 50% CGT discount applies and the discounted gain can be distributed to beneficiaries in the most tax-efficient way.
For a $300,000 capital gain (after 50% discount: $150,000): Without trust: added to one person’s income at 45% = $67,500 CGT. With trust, split across multiple lower-income beneficiaries: potentially $20,000–$30,000 in total CGT.
Important 2026 update: The 50% CGT discount is being replaced for properties purchased after 12 May 2026, effective 1 July 2027. This affects the CGT-splitting advantage for new purchases. See our Negative Gearing Changes 2026 guide for details.
3. Adult Children as Beneficiaries
Once children turn 18, they can be beneficiaries of the trust’s income. If they’re studying or on low incomes, distributing rental income or capital gains to them uses their low or zero-rate tax thresholds.
The Major Disadvantage: Land Tax
This is where many investors get surprised, and it’s important to understand before setting up a trust for property.
In most Australian states, trusts do not get the land tax-free threshold that individuals receive. They are instead assessed on a separate, often unfavourable schedule.
| State | Individual Threshold | Trust Threshold |
|---|---|---|
| NSW | $1,075,000 (2024–25) | $0 — land tax from dollar 1 |
| Victoria | $300,000 | $25,000 (concessional threshold applies) |
| Queensland | $600,000 | $350,000 (trust rate) |
| South Australia | $723,000 | $25,000 |
| Western Australia | $300,000 | $300,000 (same as individual) |
| Tasmania | $100,000 | $25,000 |
In NSW especially, holding property in a trust is expensive from a land tax perspective — you pay land tax from the first dollar of land value, every year.
For a property with $800,000 in land value in NSW, the land tax bill in a trust can be $15,000+ per year. An individual would pay nothing (below the threshold).
See our full guide to land tax in Australia for state-by-state details.
The land tax calculation must be done before structuring any property purchase in a trust. In many cases, the annual land tax cost outweighs the income tax savings — particularly in NSW.
Asset Protection: When a Trust Genuinely Helps
One of the other primary reasons investors use trusts is asset protection.
If you’re a business owner, a doctor, a director of a company, or in any profession with personal liability exposure, assets held in a properly structured trust can be protected from creditors in certain circumstances.
The logic: if the trust owns the property and you’re simply the trustee, your personal creditors cannot necessarily access the trust assets to satisfy a judgment against you personally.
Important caveats:
- This requires a corporate trustee (not you personally as trustee)
- Courts can and do look through trust structures in cases of fraudulent conveyance (setting up a trust specifically to avoid creditors)
- Trust assets are not fully protected in bankruptcy in all circumstances — the ATO and courts have substantial powers
Asset protection is real but often overstated by trust promoters. Get proper legal advice on the specific protection offered in your circumstances before making decisions based on it.
Negative Gearing in a Trust: A Critical Limitation
Here’s a significant practical problem that many investors don’t realise until it’s too late:
Trusts cannot distribute losses to beneficiaries.
If your trust property runs at a net loss (negatively geared), that loss is trapped inside the trust. It cannot be offset against your personal income to reduce your tax bill.
The loss can be carried forward within the trust to offset future trust income, but you get no immediate tax benefit.
This is in direct contrast to property held in your own name, where a negatively geared property immediately reduces your assessable income and generates a tax refund.
Implication: Trusts are most advantageous for positively geared properties (where there’s income to distribute) or properties close to neutral gearing. For strongly negatively geared properties relying on the tax deduction for cash flow, a trust structure is often counterproductive.
For a full explanation of negative gearing and how it interacts with trust structures, see our guide to negative gearing in Australia.
Family Trust vs. Company: What’s the Difference?
| Discretionary Trust | Company | |
|---|---|---|
| Tax rate on income | Distributed at beneficiary rates (can be 0–45%) | Flat 30% company rate (25% for small companies) |
| CGT discount | 50% discount available | No CGT discount |
| Negative gearing | Losses trapped in trust | Losses trapped in company |
| Asset protection | Moderate (better with corporate trustee) | Strong |
| Land tax | Unfavourable in most states | Unfavourable in most states |
| Flexibility | Very high (discretionary distributions) | Low (dividends require equal treatment) |
For most residential property investors, a company structure is worse than a trust — particularly because companies get no 50% CGT discount on property sales, which makes the tax on long-term gains much higher.
When Does a Trust Make Sense for Property Investment?
A trust makes most sense when:
- Your combined family tax benefit from income splitting exceeds the land tax disadvantage. Run the numbers specifically for your state and property type.
- The property is positively geared or neutrally geared. The income-splitting advantage only works if there’s income to distribute.
- You have genuine asset protection needs — professional liability, business ownership, directorship risk.
- You’re holding the property for 10+ years — the structure costs (setup, accounting, ASIC fees, land tax) need time to be offset by the cumulative tax savings.
- You have (or plan to have) adult children as beneficiaries — each adds tax-free threshold capacity.
- You’re in a state like WA or QLD where land tax thresholds for trusts are more reasonable.
When a Trust Does NOT Make Sense
Avoid trusts for property when:
- You’re in NSW and the property has significant land value — the land tax hit is almost always too high
- The property is negatively geared — you lose the tax benefit of the loss immediately
- You’re a first-time investor with one property — the complexity and cost of a trust isn’t justified
- Your family has no low-income beneficiaries — if everyone earns $150K+, the income-splitting benefit is minimal
The Costs of Operating a Trust
| Cost | Estimate |
|---|---|
| Trust deed establishment | $1,500–$3,000 (once-off) |
| Corporate trustee setup (if used) | $1,000–$1,500 (once-off) |
| ASIC annual corporate fee | $290/year |
| Trust tax return | $500–$1,500/year (more complex than personal return) |
| Annual ongoing cost | $800–$1,800/year (excluding land tax) |
Add land tax on top of this. In NSW, this can add $10,000–$25,000+ annually depending on property land value.
FAQ: Buying Property Through a Trust in Australia
The Bottom Line
Trusts are a legitimate and powerful investment structure in the right circumstances — particularly for high-income families with multiple beneficiaries, positively geared properties, and meaningful asset protection needs.
But they are not appropriate for everyone. The land tax implications in NSW alone can make a trust economically irrational for most investors. The negative gearing trap catches many beginners by surprise.
Run the full numbers — income tax savings, land tax cost, setup and accounting fees, borrowing constraints — before committing to a trust structure. For most investors with one or two properties, holding in your own name is simpler, cheaper, and more tax-effective.
For more on structuring your property investments efficiently, see: How to Build a Property Portfolio from Scratch in Australia and Land Tax in Australia: What Every Property Investor Needs to Know
This article is for general informational purposes only and does not constitute legal, financial, or tax advice. Trust structures involve significant complexity. Always consult a solicitor and registered accountant before establishing a trust.
General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.