Skip to content

    Can We Afford It?

    AdvancedMedium risk

    Property in a Trust

    Hold property in a discretionary or unit trust for tax and asset protection

    What is Property in a Trust?

    Holding investment property in a discretionary (family) trust or unit trust can provide income splitting between beneficiaries, asset protection from creditors, and estate planning benefits. However, trusts cannot access the 50% CGT discount for individuals in all circumstances, and negative gearing losses are trapped inside the trust.

    How it works

    1. 1Establish a discretionary trust with a corporate trustee
    2. 2Trust purchases the investment property
    3. 3Rental income distributed to beneficiaries at trustee's discretion
    4. 4Income can be split between lower-income family members to minimise tax
    5. 5Assets held in trust are generally protected from personal creditors

    Worked example

    Net rental income: $40,000. The trustee distributes $20,000 to a spouse with no other income and $20,000 to an adult child with no other income.
Tax on $20,000 each at 2026–27 rates: $270 each before offsets, $540 in total.
Held personally by one person in the 37% bracket (39% with Medicare): $40,000 × 39% = $15,600.
Difference: about $15,060 a year, before the trust's running costs.

    Pros

    • Income splitting among beneficiaries can significantly reduce family tax bill
    • Asset protection, trust assets generally quarantined from personal creditors
    • Estate planning flexibility, assets don't form part of personal estate
    • Unit trusts: fixed entitlements allow institutional lending

    Cons

    • Trusts cannot distribute losses (negative gearing losses are trapped)
    • Land tax: trusts often don't get the land tax threshold applicable to individuals, higher land tax
    • Setup cost $1,500–$3,000; ongoing accounting/tax return $2,000–$5,000/year
    • Complexity: trustees have fiduciary duties and strict compliance obligations

    Risks

    • Distributing to minors under 18: excess amounts taxed at 66% (penalty tax)
    • Trust cloning and splitting: ATO anti-avoidance provisions apply, specialist advice required
    • If trust deed is defective: tax and asset protection benefits may be lost

    Tax treatment

    Trust income taxed at beneficiary's marginal rate when distributed. 50% CGT discount available if trust holds asset 12+ months and distributes to individual beneficiaries. Losses trapped inside discretionary trust, cannot be distributed. Land tax: trusts often pay highest marginal rate with no threshold (varies by state). Seek specialist legal and tax advice before establishing a trust.

    Official references

    Keep exploring

    Read property guides on the blog All strategies

    General Advice Warning

    The information on this site is general in nature and does not consider your personal circumstances, financial situation, or needs. Before acting on any information, you should consider its appropriateness having regard to your own situation and seek professional advice from a licensed financial adviser, mortgage broker, accountant, or solicitor.