For many families, an investment property is the first asset bought with the next generation in mind. Holding property in a family trust can offer flexibility, asset protection and succession-planning benefits. However, it also comes with important legal consequences, and the tax landscape has changed following the 2026 Federal Budget.
Before putting a property into a family trust, it is worth understanding who legally owns the property and who receives the rent. It is also worth knowing what happens to any losses and what tax may apply when the property is eventually sold. In an increasingly complex property tax landscape, you need answers to these questions before you sign the contract, or you risk CGT and duty consequences which may be avoidable.
Check your trust deed before you sign
The starting point is the trust deed. Check that the trustee has sufficiently broad powers to acquire, hold, borrow against, lease, manage and ultimately sell real property. If you are using an older trust deed, or the proposed transaction is unusual, it is worth having the deed reviewed before entering into a contract.
The costs of holding property in a family trust also differ. Land tax treatment can be less favourable, depending on the State or Territory. Financing may be more complicated, and annual accounting and trust administration costs apply.
Why a loss on property in a family trust stays in the trust
A tax loss made by a trust cannot be distributed to its beneficiaries.
For example, say a family trust receives $40,000 in rent but incurs $55,000 in deductible interest and other expenses. The $15,000 tax loss cannot be distributed to Mum, Dad or another beneficiary to offset their salary or other personal income. Instead, the loss generally remains in the trust. It may be carried forward and used against income earned by the trust in a later year, subject to the trust loss rules.
The core 2026 reforms to negative gearing and capital gains tax have now been legislated. Some detailed rules and their application to particular circumstances may continue to require careful analysis.
For established residential property acquired after 7:30 pm AEST on 12 May 2026, excess deductions will generally no longer be available against unrelated income. Instead, those amounts are quarantined for use against residential property income, including relevant capital gains, with unused amounts carried forward. Properties held before the Budget-night cut-off are protected by the grandfathering rules. The negative gearing reforms apply to individuals, partnerships, companies and most trusts.
The Government has announced that it intends to introduce a minimum 30% tax on discretionary trusts from 1 July 2028, subject to exceptions. This is a separate Budget measure and should not be confused with the negative gearing reforms. As at September 2026, this measure should still be treated as a proposed reform rather than assumed to operate in its final announced form. We look at what it means for existing trusts in this article.
A family trust gives you flexibility, but that flexibility comes with rules about who can benefit and how. Getting the structure right when you buy is far easier than unwinding it once the property is in the trustee’s name.
What happens when the trust sells the property?
The sale of trust property can trigger capital gains tax (CGT). Historically, one attraction of holding an investment property in a qualifying trust has been that a trust may be eligible for the 50% CGT discount where the relevant requirements are satisfied. Capital gains could also potentially be streamed to beneficiaries where the deed and tax law permit.
The 2026 Budget reforms also change the CGT regime from 1 July 2027. For affected taxpayers, the existing 50% CGT discount is replaced by an inflation-based adjustment to the cost base and a minimum 30% tax rate on real capital gains. The legislation contains transitional rules so the new regime applies to gains accruing after 1 July 2027.
Living in the property doesn’t help either. The ordinary CGT main residence exemption is generally directed to ownership interests held by individuals. Simply living in a house owned by a discretionary family trust does not ordinarily give the trust the same main residence exemption that an individual owner may receive. There are specific exceptions, including rules relevant to some deceased estates and special disability trusts. We explain why this matters for your home in this article.
If you’re weighing up whether to buy in your own name or through your family trust, call us on 1300 654 590 or email us. We’ll talk it through with you in an obligation-free discussion before you commit to a contract.
Should you transfer a property you already own into your trust?
Transferring an existing property to a trustee can potentially trigger capital gains tax and stamp duty or transfer duty. It can also bring refinancing requirements, lender consent and changes to land tax and other ongoing liabilities. For tax purposes, transferring property to a related trust for little or no consideration does not necessarily avoid CGT. Market-value rules can apply to non-arm’s-length transfers.
How ADLV Law can help
There is no single best structure for owning property.
If you are considering buying, transferring or leasing property through a family trust, we can review your trust deed. We can also work with your accountant or tax adviser to make sure the structure is appropriate for what you are trying to achieve.
If you’d like to talk through your specific situation, call us on 1300 654 590 or email us for an obligation-free discussion. We’ll connect you with a great lawyer who can guide you to the right solution.
The information contained in this post is current at the date of publishing – 09 October 2026.
