If you already own your home and you're thinking about your first – or next – investment property, one of the first decisions you’ll face is how to buy it.
A trust can be a useful structure for the right investor, but it comes with trade-offs that you should understand before you sign anything.
This article is general information only and does not constitute financial, legal or tax advice. Trust structures involve complex legal and tax considerations that vary significantly depending on individual circumstances. We recommend seeking advice from a qualified accountant and solicitor before making any decisions about ownership structure.
What is a trust?
A trust is a legal structure where a trustee holds assets on behalf of beneficiaries. In property investment, the most common structure is a discretionary trust, also known as a family trust.
Instead of owning the property in your personal name, the trust owns it. The trustee – which can be an individual or a company – is responsible for managing the asset and any associated loans.
According to the Australian Taxation Office (ATO), discretionary trusts are the most common type of trust in Australia.
Why do investors use trusts for property ownership?
There are several reasons investors choose to buy property through a trust.
Income distribution and tax benefits
A discretionary trust lets the trustee to allocate rental income among beneficiaries each year based on who is in the most tax-efficient position to receive it. For instance, if a trust earns $80,000 in rental income a year, the trustee can allocate $40,000 each to two beneficiaries in lower tax brackets, reducing the overall tax liability compared to one high-income earner receiving the full amount.
If the property is held for more than 12 months, the trust may also qualify for the 50% capital gains tax (CGT) discount, which can be passed on to individual beneficiaries where the trust deed allows. That's an advantage over a company structure, which does not receive the CGT discount.
Asset protection
As assets in a trust are legally owned by the trustee, they are generally protected if a beneficiary faces personal financial or legal issues – provided the trust is properly structured and operated.
Estate planning
Assets held within a trust do not form part of a deceased person's estate, which allows for a smoother transition of control to the next generation without triggering probate or additional taxes in most cases.
Potential stamp duty exemption on transfer of ownership
In Victoria, a transfer duty exemption exists for transfers of property from a discretionary family trust to a beneficiary under section 36A of the Duties Act 2000, provided certain conditions are met. To qualify, duty must have been paid on the original acquisition, the beneficiary must have been a beneficiary of the trust at the time the trust acquired the property, and the transfer must be made absolutely and without consideration.
For example, if a family trust purchased a property in 2026 with an adult child named as a beneficiary from the outset, and the trustee later distributes that property to that child as an in specie distribution – with no loans forgiven and no other consideration changing hands – the transfer may qualify for the exemption.
The conditions for this are strict. Specialist legal advice is essential before any transfer is made.
The downsides of buying an investment property in a trust
Trusts are not a simple solution. They come with trade-offs that you need to understand.
No negative gearing for individuals
If the property is negatively geared – that is, expenses exceed rental income – the loss is trapped inside the trust. It cannot be distributed to individual beneficiaries to offset against personal income.
For investors who are counting on negative gearing to reduce their personal tax bill, this can be a drawback.
Land tax
For properties held in a trust, Victoria's land tax threshold drops to $25,000, compared to $50,000 for individual ownership. The trust surcharge rate also applies on top of standard rates. Given that Victoria already has the lowest land tax threshold in Australia, this adds a higher annual cost that needs to be factored into your cash flow modelling before you commit to a structure.
Borrowing complexity
Lenders treat trust borrowings differently from personal borrowings. Some lenders require all adult beneficiaries to provide personal guarantees, apply stricter income assessment criteria and cap LVR at 80% rather than the higher ratios available to individual borrowers.
Upfront and ongoing compliance costs
Trusts typically require upfront payment to be set up correctly. Then, there are required annual tax returns, formal distribution resolutions by 30 June each year and ongoing accounting that can all eat into your income.
What your broker needs to know
If you are considering buying through a trust, your mortgage broker needs to know early, before you even start looking at properties. The lender landscape for trust borrowing is narrower than for individual borrowers, serviceability is assessed differently and the documentation requirements are more involved.
When buying in a trust, structure becomes critical. A few key considerations include:
- Ensuring the loan is set up in the correct legal name of the trustee
- Avoiding mixed-purpose lending within the trust
- Aligning the loan structure with your broader portfolio strategy
If you already own property in your personal name, your broker needs to understand how the new purchase fits into your overall position. This includes your existing debt levels and cash flow across both personal and trust structures
A good brokerage like the team at AXTON Finance will work alongside your accountant and solicitor to make sure your borrowing structure, trust deed and overall financial position are aligned before you act. For busy professionals, that kind of coordinated advice at the start of the process is far less costly than fixing a structural problem later.
Is a trust right for your next investment property?
A trust may work well for investors who expect the property to be positively geared, have multiple beneficiaries in lower tax brackets, are thinking about long-term wealth transfer and asset protection and are comfortable with the additional compliance and cost.
It might be less suitable if you are relying on negative gearing to offset high personal income, are buying a single property with no clear distribution strategy or are focused on maximising borrowing capacity.
If you opt to buy in a trust, the key is getting the structure right from the start. A well-structured trust and loan can support long-term growth. A poorly structured one can limit flexibility and increase costs over time.
Are you weighing up whether a trust is the right structure for your next investment? Speak to the team at Axton Finance. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch today.
