Buying property in a trust through a trust is becoming a popular strategy in Australia – especially for investors and families thinking long-term. So what’s the appeal? A trust can offer tax benefits, help protect your assets, and give you more control over how wealth is passed on.
But trusts aren’t a one-size-fits-all solution. If you’re not careful, they come with extra costs, paperwork, and potential tax traps. In this guide, we’ll break down what trusts are, how they work regarding property, the pros and cons, and what to consider before setting one up.
Expert Advice: Setting up a trust for property investment requires professional accounting expertise. Find top-rated tax specialists in your area:
What is a Trust?
Definition: A trust is a legal structure where one party (the trustee) holds assets on behalf of others (the beneficiaries). When it comes to buying property, the trustee is the legal owner who legally owns the home or investment, but the beneficiaries are the ones who get the benefit – either through income, capital gains, or long-term ownership.
Every trust is governed by a document called a trust deed, which spells out:
Who the trustees and beneficiaries are
How income and capital should be handled
The rules for managing the trust.
Trusts aren’t legal entities like companies—they’re more like relationships between parties. However, a trust still gets its own Tax File Number (TFN) for tax purposes.
Quick Fact: According to the Australian Securities and Investments Commission (ASIC), if the trust is earning income or running a business (like renting out a property), it usually needs an ABN and a TFN. However, the ABN is linked to the trustee, not the trust itself.
Types of Trusts for Property Investment
In Australia, the three main types of trusts are discretionary, unit, and hybrid. Each one works differently.
Discretionary Trust (aka Family Trust)
Definition: A discretionary trust is a flexible structure where the trustee decides how income and capital are distributed among the beneficiaries. It’s the most common type of trust used for property investment in Australia.
In a discretionary trust, the trustee is in the driver’s seat. They can choose who gets what – and how much – each year. That makes it great for families who want to share rental income or capital gains in a tax-effective way.
Key features include:
The trustee decides who gets what, with complete flexibility over how income and capital are shared.
Beneficiaries are usually family members (hence why it’s called a “family trust”)
The trustee can send more income to family members at lower tax rates.
Distributions can change each year, depending on what works best for the family at the time.
The trust owns the property, not you personally, which significantly protects the asset.
Unit Trust
Definition: In a unit trust, each beneficiary owns a fixed number of “units,” similar to owning shares. Income and capital are split according to how many units each person holds.
If you want a simple way to visualise it, think of it like a pizza cut into slices. You get half the income (and gains) if you own half the slices. This setup is less flexible but more structured, so it’s ideal when you’re investing with others and want everything split fairly.
Key features include:
The beneficiaries (called unitholders) each own a set number of units.
Income and capital are split based on how many units each person holds
Units can be bought and sold, making unit trusts handy for joint ventures or investing with people outside your family.
It is not as flexible as a family trust – you can’t shift income to save on tax.
Commonly used when unrelated parties invest together.
Hybrid Trust
Definition: As the name suggests, a hybrid trust combines features of both discretionary and unit trusts. Some parts of the income or capital are fixed (like a unit trust), while others are distributed at the trustee’s discretion (like a family trust).
It’s a “best of both worlds” option—you get the structure of a unit trust plus the flexibility of a family trust. However, things can be complicated because of the flexibility, so hybrid trusts are not as commonly used.
Key features include:
Fixed unitholders are entitled to a set portion of the trust.
The trustee still has some wiggle room to decide how to split income or capital.
Offers a nice mix of certainty and flexibility – more structured than a family trust but less rigid than a unit trust
It’s not the most straightforward setup – they’re tricky to run and usually need expert help.
Less common these days, but can work well for complex investment setups or joint family ventures.
Special Purpose Trusts
While most property investors stick with discretionary, unit, or hybrid trusts, there are a couple of special-purpose trusts you might hear about:
Testamentary trust – Set up as part of a will and only kicks in after someone passes away. It’s often used to pass on wealth while protecting it from legal disputes or poor money management.
Bare trust – A super simple trust where the trustee holds the asset without much control. The beneficiary has full rights to the asset and can call the shots anytime.
Self-managed super fund (SMSF)—Technically a trust, an SMSF lets you buy property using your super. Some investors use this strategy to build wealth for retirement.
“Using a trust as a special purpose vehicle for investing can be a smart strategy, but it’s crucial to ensure it aligns with your personal circumstances and needs. Trust structures do come with certain drawbacks, and lenders each have their own policies on how they assess and handle trusts. Before making any major decisions, be sure to seek professional advice from both your accountant and mortgage broker, as mistakes can end up being very costly.“
Mansour Soltani, Soren Financial
Benefits of Buying Property Through a Trust
Buying property through a trust has plenty of advantages, especially when it comes to protecting your assets, managing taxes, and earning income from passing on wealth.
Asset Protection
One of the main draw cards of using a trust is that it separates legal and personal ownership. That means the trust owns the property, not you as an individual. If you’re ever sued or go bankrupt, it’s harder for creditors to come after the trust’s assets. This structure can also protect family property from individual disputes (for example, during a divorce or legal challenge). It’s not a silver bullet, but it does add a layer of protection that can make a big difference.
Tax Benefits
Trusts open up a few helpful tax strategies, such as:
Income splitting: In a discretionary trust, income can be distributed to family members in lower tax brackets to reduce the total tax paid.
Capital gains planning: You can choose who receives any capital gains – a smart way to minimise tax when selling property.
Deductions still apply: You can claim many standard property-related expenses and negative gearing concessions through the trust.
Land tax perks: Depending on the state, trust ownership may offer advantages regarding land tax thresholds.
Expert Insight: The Australian Taxation Office (ATO) has specific guidelines on trust distributions that can affect taxable income. Review their Trust Taxation Guidelines to ensure compliance with current regulations.
Estate Planning
Trusts are also a fantastic tool for estate planning. Because the trust owns the property, it generally sits outside your personal estate. That means it may avoid probate delays and won’t be subject to the same legal challenges from other family members. You can use the trust deed to guide how wealth is passed on and financially support your kids and grandkids over time.
Flexibility in Profit Distribution
If you like having options, a discretionary trust gives you a lot of them:
The trustee can shift income between beneficiaries each year based on their tax situation.
You can add new family members to the trust over time.
It gives you more control over how profits are shared and when, which is excellent for long-term planning.
You can adapt to changes in your family’s income or financial needs without restructuring everything.
Drawbacks and Considerations
Buying property through a trust can be smart, but it’s not always straightforward. There are extra costs, more paperwork, and a few hurdles to be aware of.
Setup and Ongoing Costs
Setting up a trust isn’t free – and maintaining one adds a bit to your annual admin load. Expect to pay anywhere from $1,000 to $3,000 upfront to have a solicitor or accountant properly set up your trust deed. If you’re using a company as the trustee, you must also factor in ASIC registration and ongoing fees.
Once the trust runs, you must lodge a yearly tax return, even if you’re not making much income yet. Depending on complexity, most investors spend between $800 and $2,000 a year on trust accounting.
Financing Challenges
Getting a loan through a trust can be more complex than borrowing in your own name, especially regarding property transfers. Not all lenders offer trust loans and those that do often treat them as higher risk. That can mean:
Stricter lending criteria
Lower borrowing capacity (mainly if your trust has a limited financial history)
More paperwork (like trust deeds, tax returns, and beneficiary details)
You may be asked to personally guarantee the loan, even if the trust borrows.
Broker Recommendation: When seeking financing for trust property purchases, work with an experienced mortgage broker in Sydney, Melbourne, or Brisbane who specialises in trust lending structures.
Regulatory Constraints
Managing a trust comes with a few extra legal boxes to tick. For example:
Trustee decisions (like income splits) must be documented
A trust tax return is required every year, even with no income
You have to stick to the trust deed, and breaking the rules can cause tax issues
Transferring property in or out of a trust can trigger stamp duty or CGT.
Rules vary by state, so make sure to check what applies where you are buying property.
Tax Implications When Buying Property Through a Trust
Trusts can offer valuable tax benefits, including potential tax deductions, but there are also some rules and limitations to be aware of. Here’s what to consider before you go down the trust path.
Income Tax
If the trust distributes all its income to beneficiaries, the trust itself is usually not taxed—instead, each beneficiary pays tax at their own marginal rate. But if any income stays in the trust, it can be hit with the top marginal tax rate (currently 45%). That’s why planning your distributions properly and keeping your paperwork in check is so important.
Expert Insight: Trusts distributed approximately $60 billion in net income to beneficiaries in the 2020-21 financial year, showing their huge role in Australia’s tax system.
Capital Gains Tax (CGT)
When a trust sells a property, CGT still applies, just like an individual sold it. The good news? If the property has been held for more than 12 months, the 50% CGT discount can also apply. The gain is usually passed on to beneficiaries, who then pay taxes based on their income.
Land Tax
This one’s a bit of a mixed bag – land tax rules change depending on your state. In some places, trusts miss out on the land tax-free threshold or cop higher rates. For example, in NSW, discretionary trusts can get slugged with an extra 2% surcharge if the trust deed has foreign beneficiaries. Check the rules in your state or chat with a property-savvy accountant before making any big moves.
Stamp Duty
When a trust buys a property, it pays stamp duty like anyone else. However, issues can arise later – like transferring a property into or out of a trust, changing beneficiaries, or updating the trustee. These actions can trigger stamp duty and sometimes CGT. It’s one area where professional advice can save you thousands.
5 Practical Steps to Buying Property Through a Trust
Buying a property through a trust may seem complicated initially, particularly when you need to transfer ownership, but following these steps becomes more effortless.
1. Set Up Your Trust
The first step is to establish the trust itself. This involves the following:
Get advice from legal and financial professionals about the correct type of trust for your needs
Draft a detailed trust deed that outlines how the trust will operate
Appoint trustees (either individuals or a corporate trustee – we’ll explain the difference in step 2)
Register the trust with the relevant authorities and get a tax file number
Open a bank account and set up the necessary administrative systems
Action Tip: Before you set up your trust, it’s worth speaking with a qualified accountant from our recommended list of top accountants in Sydney, Melbourne, or Brisbane. They can help you tailor the trust to your investment goals.
2. Choose Your Trustee Structure
After establishing the trust, you must decide who (or what) will act as the trustee. You’ve got two options:
Individual Trustees
This is the more straightforward and budget-friendly option, but it has a few trade-offs. The key points to remember here are:
Lower upfront and ongoing costs
Easier to set up
Property is legally held in the individuals’ names
If the trustees change, the property title must also be updated (which can be expensive).
Corporate Trustee
This involves setting up a company to act as the trustee. It adds complexity and cost but comes with long-term advantages:
Offers stronger asset protection and limited liability
Has “perpetual succession”, which means the company continues even if directors change
Makes property title management much simpler
Requires a registered company and ongoing ASIC compliance
Higher upfront and ongoing costs.
Although the costs may be higher upfront, a corporate trustee may be a smart move if you’re building a long-term investment portfolio and want better protection and flexibility.
3. Secure Finance
Getting a loan through a trust is trickier than a standard home loan, so it’s essential to be prepared. Here’s a breakdown of what you’ll need to do:
Look for lenders familiar with trust lending (not all banks are)
Get all your trust documents in order
Be ready to offer personal guarantees (often required by lenders)
Consider mortgage pre-approval to improve your buying power
Allow extra time for loan approval compared to standard loans.
Pro Tip: Not all lenders treat trust applications equally. Some lenders offer specialist trust loan products with more flexible terms. A specialist mortgage broker familiar with trust lending can help you find the right fit and save time and stress.
4. Choose and Buy Your Property
It’s time to buy once your trust is set up and finance is ready. Here’s what to keep in mind when purchasing the property:
Choose a property that aligns with the trust’s investment strategy.
Get building and pest inspections and do your due diligence.
Trusts can be used to purchase investment property, offering financial strategies and benefits such as separating asset ownership from beneficial ownership for better financial management.
Always use the correct name of the trust when making offers.
Work with experienced conveyancers familiar with trust purchases
Double-check that all contracts and documents correctly reflect the trust structure.
Need a hand finding the right property? See our comprehensive guide to property investment types.
5. Manage the Trust’s Ongoing
After you’ve bought the property, good trust management will keep your trust compliant and protect your investment. You should:
Keep separate financial records and accounts for the trust
Record all trustee decisions in formal resolutions
Make sure rent and other income goes straight into the trust’s account
Maintain appropriate insurance in the trust’s name
Regularly review the trust’s performance and make adjustments if needed.
These five steps can help simplify the process and set your trust up for success.
Case Studies: Trust Structures in Action
Let’s examine two examples to see how different trust structures work.
Case Study 1: Family Investment Strategy
The Smith family established a discretionary trust to purchase their first investment property. This structure gave them a flexible and strategic way to manage the property income and the investment risk. Here’s what it helped them do:
Distribute rental income to their children, who were uni students in lower tax brackets
Protect the property from potential business liabilities (this was important as both parents were self-employed)
Create a long-term vehicle for growing wealth across generations
Adjust income distributions as family circumstances changed
Build a foundation for growing a property portfolio over time.
Results: Over 10 years, the Smith family trust saved approximately $42,000 in tax through smart income distribution. They reinvested these savings and used the trust to build a portfolio of three investment properties.
Case Study 2: Business Partners in a Joint Venture
Three business colleagues – Tristan, Jennifer, and Matt – used a unit trust to purchase a commercial property. They used a unit trust to keep things clean and structured from day one. Here’s how it worked:
Each partner contributed equally and held the same number of units
The clear ownership structure helped them avoid potential disputes
The trust kept the property separate from their personal finances
They split income evenly, in line with their unit holdings
When Tristan wanted to exit, the trust meant they could transfer his units without selling the whole property.
Results: Thanks to the trust, Tristan transferred his units without triggering the sale of the property, saving the group roughly $32,000 in stamp duty and transaction costs.
Who Should Consider a Trust for Property Investment?
Trusts aren’t for everyone, but for the right investor, they can be a powerful vehicle for buying property. You might want to consider a trust if you tick one or more of these boxes:
You’re a high-income earner looking to reduce or manage your tax bill more efficiently.
You own a business and want to protect personal assets like property.
You’re planning to transfer wealth to your kids.
You have an extensive property portfolio and want to manage land tax more efficiently.
Your family setup is complex, and you need a flexible way to distribute income.
You work in a high-risk profession and want to protect your assets.
You’re building a long-term portfolio.
If you plan to invest and build wealth over the long term, a trust structure could provide better protection, flexibility, and tax outcomes than holding property in your own name.
Getting Professional Advice
Trust structures can be complex, so getting the right professional advice early on is essential. Not just to set up the trust but also to align it with your investment goals. These experts can guide you through the process:
Financial advisor: To assess your overall financial position and ensure a trust aligns with your investment goals.
Accountant: To help with tax planning, compliance, and long-term structuring.
Legal professional: Draft the trust deeds and advise you on the proper structure.
Mortgage broker: To navigate your lending options and find a lender that understands trust finance.
Property adviser or buyer’s agent: To help choose the right property based on your trust’s investment strategy.
Conveyancer or property solicitor: To handle the legal transfer of the property and set up all the trust-related paperwork.
Expert Connection: Buying property through a trust comes with extra-legal steps, so having the right conveyancer in your corner is essential. Speak to a top-rated conveyancer in Sydney, Melbourne, or Brisbane who specialises in trust property transactions.
Alternatives to Trust Ownership
Trusts aren’t the only way to invest in property. Depending on your goals, you may prefer another ownership structure.
Individual ownership
This is the simplest option for buying and holding property. Owning property in your name is easier, but individual ownership won’t give you as many tax or estate planning options as a trust.
Joint tenancy
This option is standard for couples because it gives both parties equal property ownership. It works well for shared ownership but has limited flexibility, significantly if your circumstances change.
Company structures
This option allows you to limit your liability. However, the tax treatment is different from that of trusts and can be less favourable, depending on your income and structure.
Self-Managed Super Fund (SMSF)
If you have an SMSF, you can use it to buy an investment property. SMSF ownership gives you a few tax advantages, but there are significant rules on what property you can buy and how to use it. It’s best suited for experienced investors who understand SMSF compliance regulations.
Partnership arrangements
These can work well for business relationships or joint ventures. Like any shared arrangement, however, it will require a clear agreement and ongoing cooperation between all parties.
If this is your first investment property, we recommend reviewing our comprehensive guide to first home buying to understand the basics before you consider complex structures.
Trust Ownership vs Traditional Property Investment
The table below compares four of the most commonly used options for property ownership in Australia.
Feature | Trust Ownership | Individual Ownership | Company Ownership | SMSF Ownership |
Asset Protection | High – assets owned by trust, not individuals | Low – personal assets are exposed to legal or financial risk | Moderate – limited liability | High – assets generally held separately from personal assets |
Tax Flexibility | High – for discretionary trusts, you can distribute tax to beneficiaries in lower tax brackets | Low – taxed at your personal marginal rate | Fixed – taxed at the company tax rate | Moderate – taxed at concessional rates |
Income Splitting | Available – income can be distributed to multiple beneficiaries (discretionary trusts) | Not available | Limited – possible through carefully structured shareholdings & dividends | Not available |
Setup Costs | $1,500-$3,000 | Minimal | $1,000-$2,000 | $2,000-$4,000 |
Ongoing Costs | $800-$2,000 annually | Minimal | $800-$1,500 annually | $2,000-$3,000 annually |
Financing Ease | More difficult – lenders often need extra documentation | Easiest | Moderate – more complex than individual, but easier than some trusts | Limited – strict rules and fewer lenders offer SMSF loans |
Estate Planning | Strong – pass on asset control without triggering ownership changes | Basic – assets go through your will | Moderate – use company structures to plan succession, but more complex | Restricted – assets stay in fund and are paid out to binding nominations |
Control | Indirect – decisions are made through the trustee | Direct – you personally control the property | Through directors – control depends on who runs the company | Shared – trustees control decisions, often with input from members |
Land Tax Treatment | Often disadvantaged – may miss out on tax-free thresholds | Standard rates with threshold | Often disadvantaged – thresholds and surcharges may apply | Generally eligible for thresholds |
Conclusion
Buying property through trust can be smart for many Aussie investors. It offers advantages in asset protection, tax planning, and estate management. However, these benefits come with added complexity, costs, and administrative requirements.
Suppose you’re thinking about buying property through a trust. In that case, it’s worth speaking with qualified professionals who can guide you to the proper setup and keep the trust running smoothly, especially in the face of legal action.
Contact our team for more information about finding the right professionals to help. Or, you can start by exploring the best accountants in your area with the top 10 lists below:
FAQs About Buying Property Through a Trust
Can I live in a property owned by my family trust?
However, rental arrangements should be formalised at market rates to avoid tax complications. Also, you likely won’t get the primary residence CGT exemption, so it’s not the most tax-efficient option for a home you live in.
Can a trust get a home loan?
Yes, but technically, the trustee borrows on behalf of the trust. Not all lenders offer trust loans, and those that do may have stricter requirements or less flexible terms.
How much does it cost to set up a trust for property investment?
Setup costs for the trust deed usually range from $1,000 to $3,000, and you should also consider potential government expenses. If you’re using a corporate structure, factor in another $800 to $1,500 for corporate trustee establishment. Ongoing costs for tax returns and compliance are generally around $800-$2,000 per year.
Can I transfer my existing property into a trust?
Yes, but this typically triggers a change of ownership for stamp duty and CGT purposes. Some limited exemptions exist but vary by state. The stamp duty implications can be substantial, often 4-5% of the property value.
Do I need a separate trust for each property?
Not necessarily. One trust can hold multiple properties. Using separate trusts might make sense if you manage risk across properties or deal with different land tax rules in other states.
How long can a trust own property?
Most trusts have a vesting date (typically 80 years from when the trust is set up), especially for managing family assets. After the vesting date, the trust must distribute its assets. Until then, the trust can continue to own and manage property, which makes it an excellent option for long-term or multi-generational planning.
What happens to trust property if the trustee dies?
If there are multiple individual trustees, the surviving trustees keep control. If there’s a corporate trustee, the company stays in place even if directors change, which can make succession smoother.
Can foreign residents be beneficiaries of an Australian property trust?
Yes, but it can come with tax implications. Some states charge extra land tax or stamp duty for foreign beneficiaries, and distributions may be taxed at higher rates.
Are there any restrictions on the type of property a trust can purchase?
Generally, no. Trusts can buy residential, commercial, or rural property just like individuals. However, checking your trust deed first is important, as some include restrictions on what the trust can invest in.
Can I still claim negative gearing through a trust?
Yes, but there’s a catch. Any losses from the property stay in the trust. They can’t be passed on to beneficiaries like they can with individual ownership. Instead, the trust carries those losses forward to use against future income.
MANSOUR SOLTANI
With over two decades of experience in Australia’s real estate sector, Mansour has built a career specialising in the acquisition and sale of investment and commercial properties, spanning major metropolitan hubs and regional areas. As the founder and owner of a finance brokerage firm, he manages a loan portfolio exceeding $100 million while serving a broad range of clients nationwide.
A frequent contributor to money.com.au, Mansour has developed a deep understanding of diverse investment strategies, enabling him to provide valuable, well-informed perspectives on market trends and opportunities.
