For years, buying investment properties through a family trust has been a popular strategy among Australian investors.
Trusts have traditionally offered flexibility, asset protection, tax planning opportunities, and estate planning benefits that individual ownership often cannot match.
But with the Federal Government’s recent budget announcing significant changes to capital gains tax, negative gearing, and discretionary trusts, many investors are now asking an important question:
Does buying property through a trust still make sense?
The answer isn’t as straightforward as it once was.
While trusts continue to offer valuable advantages, the latest reforms have changed the equation considerably.
Before establishing a trust for your next investment property, it’s worth understanding both the opportunities and the potential pitfalls.
What Has Changed?
Parliament has introduced several major tax reforms that directly affect property investors and trust structures.
These include:
- Limiting negative gearing benefits on many established residential investment properties from July 2027
- Replacing the traditional 50% Capital Gains Tax (CGT) discount with an inflation-indexation model and a minimum 30% tax on capital gains
- Introducing a 30% minimum tax on discretionary trusts from July 2028, subject to certain exclusions and exemptions.
These changes have prompted many investors to reconsider whether trust ownership remains as attractive as it once was.
The Advantages of Buying Property Through a Trust
1. Asset Protection Remains a Major Benefit
One of the strongest reasons investors use trusts has little to do with tax.
When structured correctly, trusts can provide a level of separation between personal assets and investment assets.
For business owners, professionals, and individuals exposed to legal liability risks, this can be an important consideration.
If asset protection is your primary objective, trusts remain a powerful wealth-preservation tool regardless of tax policy changes.
2. Greater Flexibility in Income Distribution
Traditionally, discretionary trusts have allowed trustees to distribute income among beneficiaries in a tax-effective manner.
This flexibility has enabled families to allocate income to beneficiaries on lower marginal tax rates, potentially reducing overall family tax liabilities.
Although the proposed minimum trust tax may reduce some of these benefits, trusts can still provide greater flexibility than direct personal ownership in many circumstances.
3. Estate Planning Advantages
Property held in a trust does not generally form part of an individual’s personal estate in the same way personally owned assets do.
This can simplify intergenerational wealth transfer and reduce complications during succession planning.
For investors focused on building long-term family wealth, trusts can remain an attractive structure.
4. Potential Protection From Future Policy Changes
One lesson many investors have learned over the past decade is that tax rules change.
Trusts can sometimes provide greater flexibility to adapt to future legislative changes compared with assets held directly by individuals.
While no structure is immune from reform, sophisticated investors often value optionality.
The Disadvantages of Buying Property Through a Trust
1. The New 30% Minimum Trust Tax
This is arguably the biggest challenge arising from the latest Federal Budget.
From July 2028, the Government intends to introduce a minimum 30% tax rate on discretionary trusts, significantly reducing the traditional tax-planning advantages many investors have relied upon.
For investors who established trusts primarily to distribute income to lower-income family members, the benefits may become less compelling.
2. Capital Gains Tax Benefits Are Being Reduced
Historically, trusts benefited from the 50% CGT discount available to individuals and trust beneficiaries.
The Federal Budget proposes replacing this discount with a cost-base indexation system alongside a minimum 30% tax on capital gains for individuals, trusts, and partnerships.
For investors whose strategy relies heavily on long-term capital growth, this could reduce after-tax returns compared with the previous system.
3. Trusts Are More Expensive to Maintain
Unlike personal ownership, trusts involve ongoing administration costs.
These may include:
- Trust establishment costs
- Annual tax return preparation
- Accounting fees
- Financial reporting requirements
- Legal advice
For investors with only one modest investment property, these costs can significantly reduce the financial benefits of the structure.
4. Lending Can Be More Complicated
Not all lenders treat trusts equally.
Borrowing through a trust often involves:
- Additional paperwork
- More complex loan assessments
- Personal guarantees from directors or trustees
- Potentially reduced borrowing capacity
Investors should always obtain lending advice before selecting an ownership structure.
5. Negative Gearing Benefits May Be Less Attractive
One of the major Federal Budget changes limits negative gearing benefits on many established residential properties purchased after the announcement date.
From July 2027, losses on affected properties generally won’t be able to offset salary and wage income and will instead be quarantined against future residential property income or gains. These rules apply broadly across ownership structures, including many trusts.
As a result, the tax advantages that once helped justify trust ownership may be reduced for some investors.
When a Trust May Still Make Sense
Despite the changes, trusts may still be worth considering if:
- Asset protection is a high priority
- You own a business or have litigation exposure
- You have a substantial property portfolio
- Estate planning is important
- You are building multi-generational wealth
- You seek flexibility in ownership and succession planning
In these cases, the benefits of a trust may extend far beyond tax outcomes.
When Personal Ownership Might Be Better
Direct ownership may be more appropriate if:
- You are purchasing your first investment property
- Your portfolio is relatively small
- Simplicity is important
- Cost minimisation is a priority
- Your primary objective is maximising borrowing capacity
For many everyday investors, the additional complexity of a trust may no longer deliver enough value to justify the costs.
The Bottom Line
The latest Federal Budget has undoubtedly changed the landscape for property investors.
The introduction of a minimum tax on discretionary trusts, reforms to capital gains tax, and changes to negative gearing have reduced some of the traditional tax advantages that made trusts so attractive.
However, trusts were never solely about tax.
Asset protection, estate planning, succession strategies, and long-term wealth management remain compelling reasons why many sophisticated investors continue to use them.
The key takeaway is simple: don’t establish a trust purely for tax reasons.
In today’s environment, the most effective ownership structure depends on your goals, income, risk profile, family circumstances, and long-term investment strategy.
Before purchasing your next investment property, obtaining advice from a qualified accountant, financial adviser, and mortgage broker could be one of the most valuable investments you make.