Property Investment Trusts in Australia: How Family Trusts, Tax & Lending Rules Can Make or Break Your Strategy
09 Dec 2025
Do you keep hearing about how Property Investors are buying property in a Trust? Learn how family and unit trusts work for Australian property investors, how banks assess borrowing through a trust, and the tax and land tax traps to avoid before you buy.
Key Takeaways
- Using a discretionary (family) trust for property investment can improve asset protection, income streaming, capital gains planning and estate planning, especially once a property becomes positively geared.
- Lenders assess trust loans by looking at both the trust and the people behind it, usually requiring Australian residency, full trust documentation, personal guarantees and at least two years of trust financials.
- Discretionary trust losses are trapped in the trust and carried forward, while land tax thresholds and rates for trusts in states like NSW, VIC and QLD are often less generous than for individuals.
- Contract of sale, loan documents and the trust deed must align exactly (including names and capacities) to avoid settlement delays, finance issues and weakening of the intended asset protection.
Why Use a Trust for Property Investment in Australia?
Using a family discretionary trust for property investment in Australia is a common strategy among investors who want more control and protection around their growing portfolio.
Here is what typically attracts investors to a trust structure:
- Asset protection: Separating ownership of property from your personal name may help shield assets from certain personal risks.
- Tax flexibility: Trustees can decide who receives income, potentially improving after‑tax outcomes.
- Estate and succession planning: A trust can provide a smoother way to pass wealth between generations.
Simple snapshot of why many investors consider a family trust:
| Benefit | How a Trust Can Help Property Investors |
|---|---|
| Asset protection | Keeps assets separate from individuals in many circumstances |
| Income streaming | Allows income distribution to different family members |
| Capital gains planning | Potential to allocate gains to beneficiaries with lower tax rates |
| Estate planning | Helps control how assets are managed for future generations |
Always seek tailored legal and tax advice before setting up a trust, as the rules are complex and penalties for getting it wrong can be significant. It is also wise to consider how your trust strategy fits into your broader lending plan, for example, using a multi‑lender finance strategy to avoid over‑reliance on a single bank when building a portfolio in a trust.
Once a property held in a trust becomes positively geared (the rent is higher than the interest and expenses), the flexibility of a trust really comes into play.
For example, imagine a family trust owns a positively geared investment unit generating $15,000 net income per year. Instead of all that income being taxed in one high‑income earner’s name, the trustee may be able to distribute it among:
- A non‑working spouse on a low income
- Adult children at university with little or no income
This income streaming can reduce the overall tax bill for the family group while still keeping the property inside the trust structure.
Trusts can also help manage capital gains. When a property is sold, the trust may:
- Access the 50% CGT discount (if eligibility conditions are met)
- Distribute the discounted capital gain to beneficiaries who have lower marginal tax rates
However, if you are a high‑income employee buying your first, heavily negatively geared investment, owning it in your personal name often provides better short‑term tax deductions than a trust. That is why timing, borrowing strategy, and your long‑term goals all need to be mapped out before deciding. Getting an appropriate loan pre‑approval in the right name (personal vs trustee) is an important part of this planning.
If you are considering a trust for your next property purchase, speak with your accountant, solicitor, and mortgage broker together so your loan structure, ownership structure, and tax strategy all work in sync.
Key Trust Types for Australian Property Investors and How They Shape Your Strategy
Choosing the right trust structure for property investment can have a big impact on tax outcomes, asset protection and how easily you can invest with family or business partners.
Here are the main trust types commonly used by Australian residential investors:
- Discretionary (family) trusts – often used by couples or families building a portfolio.
- Unit trusts – popular for joint ventures, friends investing together or small syndicates.
- Hybrid trusts – more complex structures blending elements of both; they generally require specialised tax and legal advice.
Why it matters: the structure you pick on day one can affect land tax, income splitting, borrowing capacity and how cleanly you can exit later. Getting it wrong can be expensive to unwind.
Each trust type has distinct advantages and trade‑offs:
| Trust type | Best suited to | Key benefit | Main drawback |
|---|---|---|---|
| Discretionary (family) | Families building wealth together | Flexible income distribution, asset protection | Losses trapped in the trust |
| Unit trust | Unrelated partners / joint ventures with friends / syndicates | Fixed ownership and clear profit splits | Less flexibility in income distribution |
| Hybrid trust | Complex, tailored strategies | Potentially combines flexibility and certainty | Higher setup and ongoing advice costs |
Real‑world setup example
Two families want to buy an investment property together:
- Each family sets up its own discretionary family trust.
- Those family trusts then each buy units in a central unit trust.
- The unit trust holds legal title to the property.
This structure:
- Clarifies how much each party has contributed.
- Makes it easier if one family wants to exit or be bought out.
- Allows income to flow to each family trust, which can then distribute to family members tax‑effectively.
If you are considering a joint purchase or building a larger portfolio, it is wise to get tailored advice on which trust structure fits your goals, risk profile and borrowing strategy. For some investors, using different entities for different projects can also open up varied finance options usually used by businesses, especially for larger developments or commercial property.
How Lenders Assess Borrowing Through a Trust in Australia
When you borrow through a trust, most major banks and second‑tier lenders in Australia will consider your application, but they assess it differently to a standard home loan.
Key things lenders usually look for:
- Australian‑resident trust: The trust must generally be tax‑resident in Australia.
- Full documentation: Expect to provide the trust deed, any amendments, company constitutions (for corporate trustees) and ID for all parties.
- Personal guarantees: Company directors or adult beneficiaries are often required to give unlimited personal guarantees.
- Evidence of income history: Lenders prefer at least two years of trust financials and distribution statements.
“A trust loan is really assessed on both the trust structure and the people standing behind it.”
This means your personal income, liabilities and credit history are still critical, even though the trust is the borrowing entity.
Once your structure and documents are clear, lenders drill into the numbers to test whether the trust can comfortably service the loan.
How banks typically assess trust income and expenses:
| Item | How lenders usually treat it |
|---|---|
| Rental income in the trust | Often shaded to 70–80% to allow for vacancies |
| Trust distributions to you | Counted as income if there is a reliable track record in tax returns |
| Trust expenses & liabilities | Treated as ongoing commitments against serviceability |
| Trust losses (e.g. negative gearing) | Viewed as recurring and can significantly reduce borrowing capacity |
For many clients, this assessment can come as a surprise, particularly when they expect 100% of rental income or one‑off losses to be ignored. Your personal credit profile is also crucial, so it helps to understand how to improve your credit score in Australia well before you apply for a trust loan.
To navigate this, working with a mortgage broker experienced in trust lending can:
- Help you prepare deeds, financials and tax returns correctly before applying.
- Match you with trust‑friendly lenders that better recognise your income.
- Reduce approval delays caused by missing documents or misunderstood structures.
If you are planning to invest or refinance through a trust, consider a pre‑assessment with a specialist broker so you understand your true borrowing power before you commit to a purchase.
Tax, Land Tax and Regulatory Trends Property Investors Must Understand
Understanding tax and land tax rules for investment properties
When buying an investment property in Australia through a discretionary trust, the tax outcome can be very different from owning it in your personal name. The structure you choose can affect:
- How losses are treated
- How much land tax you pay in states like NSW, VIC and QLD
- Whether changes to the trust later on trigger stamp duty or capital gains tax (CGT)
Example: Trust vs personal ownership
Imagine an investor in NSW holds a negatively geared property in a discretionary trust:
- The trust makes a tax loss of $15,000 in a year.
- Because it is a discretionary trust, that loss cannot be distributed to beneficiaries to offset their other income.
- By contrast, if the same property was held in the investor’s name, that $15,000 could often be used to reduce their taxable income (subject to ATO rules).
This is why it is important not to assume a trust automatically provides the “best” tax result.
Beyond income tax, state‑based land tax and transfer rules can significantly change the numbers.
Key differences to watch with trusts
- Trust losses: Discretionary trust losses are usually trapped in the trust and carried forward; they do not flow out to beneficiaries like positive income does.
- Land tax thresholds: In NSW, VIC and QLD, trusts can face less generous thresholds or higher rates than individuals. That means a trust may hit land tax sooner or pay more each year.
- Changes in control: Updating the trustee, appointor, or beneficiaries can sometimes be seen as a “dutiable transaction” by state revenue offices, potentially triggering stamp duty or CGT as if you had sold the property.
Simple comparison snapshot
| Issue | Personal Name | Discretionary Trust |
|---|---|---|
| Use of tax losses | Offset against personal income (rules apply) | Trapped in trust, carried forward |
| Land tax thresholds | Standard individual thresholds | Often lower / special trust rates |
| Changes to controllers | Usually no duty/CGT | Can trigger duty/CGT if not managed well |
Next step: Before buying your next investment, speak with your accountant and mortgage broker together. Ask them to model:
- Ownership in your personal name vs via a trust
- Expected land tax over the next 5–10 years
- The impact of any possible future changes to the trust structure
This upfront work can prevent expensive tax surprises and help you choose the most suitable structure from day one.
How to Set Up a Property Investment Trust Structure the Right Way
Putting a trust structure into practice for property investment starts long before you sign a contract.
Key early steps include:
- Obtain tailored legal and tax advice from an experienced accountant and solicitor who understand property investment and Australian tax law.
- Choose the right type of trust (e.g. discretionary, unit, hybrid) and ensure the trust deed wording actually supports your goals: asset protection, income distribution and borrowing.
- Appoint an appropriate trustee, often a corporate trustee rather than an individual, to improve asset protection and make changes easier down the track.
A common mistake is deciding on a trust after you have already found a property. By that point, changing the buyer on the contract can trigger extra legal work, finance issues, or even stamp duty. Getting the structure right from day one puts you in a stronger position with both the ATO and your lender. As part of that planning, understand how your proposed loan’s loan‑to‑value ratio (LVR) affects interest rates and approval when the borrower is a trustee.
Once your advisers confirm that a trust suits your strategy, the next step is to align all documents and finance from day one so there are no surprises at settlement.
Make sure the following match exactly:
- Purchase contract – the buyer must be the trustee (e.g. ABC Pty Ltd as trustee for the ABC Family Trust), not you personally.
- Loan application and mortgage – your lender must assess and document the loan in the name of the trustee, with any required personal guarantees clearly recorded.
- Trust deed – names, dates and powers in the deed should line up with the contract and loan terms.
Misalignment between these documents is one of the most common and costly mistake. It can delay settlement, limit borrowing capacity, or reduce the effectiveness of your asset protection.
If you are considering buying your next investment property in a trust, speak with a mortgage broker early so your lending structure is designed around the trust from the outset, not bolted on at the last minute.
For further reading, explore how a multi‑lender strategy can support borrowing through trusts, and review the top five things to keep in mind for loan pre‑approval when using a trust.
You may also want to learn how to improve your credit score in Australia, understand how LVR affects your interest rate, and review the range of finance options available for businesses that sometimes overlap with trust and property investment strategies.
Done well, buying property in a trust can enhance asset protection, add tax flexibility and support long‑term wealth transfer. Done poorly, it can reduce borrowing capacity and increase tax and land tax costs. Taking the time to get clear advice and align your legal, tax and lending strategies before you sign a contract is the key to using trusts effectively as a property investor.
Disclaimer:
All information on this website is general in nature and not intended as financial, investment, legal, or tax advice. It may not suit your personal circumstances. You should seek independent professional advice before acting on any content. We accept no liability for actions taken based on this information.
