Should You Buy Property in a Family Trust? Here’s What You Need to Know

🏠 Thinking of Buying Property in a Family Trust? Read This First.

Lately we’ve seen a wave of clients asking about using a family trust (discretionary trust) to invest in property. The interest is often sparked by mortgage brokers suggesting it can improve borrowing power.

But before you rush into a trust structure, be aware—if you’re borrowing personally to fund the purchase, there are some real tax and legal traps to consider.

Let’s break it down.

🤔 What Is a Family Trust?

A family trust—technically a discretionary trust—is a legal structure where a trustee (company) holds assets (like property or shares) for the benefit of beneficiaries (you and your family).

The key feature? The trustee has full discretion each year to decide who gets income and how much.

These trusts are often used for:

• Tax planning: Spreading income across family members in lower tax brackets.
• Asset protection: Separating personal assets from business or legal risks.
• Estate planning: Controlling how assets are passed to the next generation.

But while they offer flexibility and protection, they also come with complexity and strict compliance rules—especially when it comes to property investment.

⚖️ Trust vs. Own Name – What’s the Difference?

✔ Why People Consider a Trust

• Tax Flexibility: Income can be distributed across family members to minimise overall tax.
• Asset Protection: A trust can shield assets from personal legal issues.
• Estate Planning: Easier to transfer control of assets down the track.

✘ But Here’s What They’re Not Telling You

• No Negative Gearing Benefits: Losses stay trapped in the trust—you can’t deduct them against your salary.
• Higher Land Tax: Most states don’t give trusts the land tax threshold. This can mean thousands per year in extra costs.
• Loan Structure Risks: Borrowing personally to fund a trust can create complex issues under Division 7A and affect interest deductibility.
• No CGT Main Residence Exemption: If you ever live in the property, you won’t qualify for CGT relief.
• Ongoing Compliance & Cost: Extra setup, tax returns, resolutions, and admin every year.

👤 Owning in Your Own Name – Simpler, But Less Flexible

✔ Pros

• Losses (e.g. interest, holding costs) can offset your personal income.
• CGT discount and main residence exemption can apply in the right circumstances.
• Simple to finance, report, and manage.
• Joint ownership with 2 or more people is possible.

✘ Cons

• Income all taxed to you—no splitting.
• Split for multiple owners is fixed based on the BUY contract. Tenant in Common or Joint Tenants.
• Assets legally tied to you—less asset protection.

⚠️ Bottom Line?

Buying through a trust might make sense for some investors—but if you’re borrowing personally and injecting funds into a trust, you could be signing up for years of tax headaches and extra costs.

Tax Advice can only be given by Registered Tax Agents like us. Check our Registration here. We can fact check ideas you might find promoted on Social Media by gurus

Before you commit, get advice that considers:

• Your tax position
• Family income mix
• Loan structure
• Long-term investment goals
• Land tax exposure in your state

📅 Book a Meeting Today

One quick chat now could save you years of pain later.

If you’re about to buy investment property using a trust—or being told you should—book a planning session with us first. We’ll help you get it right from the start.