Buying property through a family trust

Buying an investment property through a family trust allows you to split profits between family members and pass on ownership without stamp duty costs.

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Richard Whitten

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Moira Daniels

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Key takeaways

  • You can use a family trust to purchase an investment property and distribute income from that investment. The trustee oversees the trust and distributes income to the beneficiaries.
  • Trust beneficiaries pay tax on investment income, but it can be distributed tax-effectively by give more of the income to beneficiaries with lower marginal tax rates.
  • If you wish to set up a trust you need a trust deed and an ABN. You should also consider getting legal advice when setting one up.

What is a family trust?

A family can use a trust to hold business or investment assets in a way removes them from individual ownership and tax liability.

Assets are transferred to the trust and owned by the trust. The trust appoints a trustee to administer the assets on behalf of the members (the beneficiaries).

If a family trust buys an investment property the trustee can distribute the rental income from the property to the family members (the trust's beneficiaries).

How do you purchase a property using a family trust?

A family trust can be used to purchase property, which is then held by the trust for tax purposes. A trust can be used to split profits among family members while proving to be a tax-effective property investment structure.

The buying process is no different to buying a property as an individual. The trustee has to sign the contracts and mortgage documents.

The main challenge is finding a home loan. Lenders may view a trust as a higher risk borrower than a couple or individual.

It's a good idea to talk to a mortgage broker.

What are the benefits of buying property through a family trust?

The tax benefits of buying property in a trust are:

  • Flexible distribution of income. If there are 3 beneficiaries in a trust, they don't have to get equal shares. The trustee could distribute income between beneficiaries based on their income and marginal tax rates. For example, income from an investment property could be split in such a way that more income goes to a family member who is a stay at home parent because they're on a lower marginal tax rate than another family member earning six figures.
  • Protect assets from creditors. Because the property is owned by the trust rather than any of the individual beneficiaries, creditors cannot pursue it even in the event one or more of the beneficiaries declare bankruptcy.
  • Transferring ownership. Normally, when you transfer ownership of a property, say to a family member, there's stamp duty charged on the value of the property and capital gains tax as well. But inside a trust you can transfer ownership without these charges coming into play. This can save everyone tens of thousands of dollars.

As with other property ownership methods, if you hold a property in a trust for more than a year, the property is eligible for a 50% capital gains tax (CGT) discount upon sale.

Are there any risks or downsides to investing via a family trust?

Property trusts take a bit of work to set up, and usually require the services of an expert, such as a solicitor or accountant. These experts charge fees, naturally.

There's also a bit of work to maintain the trust and keep accurate records of everything. But if the trust arrangement benefits everyone involved, the time and expense can be well worth it.

Negative gearing

Normally, property investors can claim tax deductions on investment expenses. If the cost of maintaining the property outweighs the income, the difference can be used to minimise your taxable income.

But family trusts do not allow beneficiaries to claim losses on their investment. This means family trusts do not benefit from negative gearing concessions. If your investment strategy relies in part on tax minimisation through negative gearing alone, you may lose out with a family trust.

Transferring ownership of property to a trust

Within a trust, transferring ownership lets you skip CGT and stamp duty. But if you set up a trust and then transfer ownership of a property currently owned by a single member of the trust, you will have to pay stamp duty and CGT.

What happens to a trust in the case of divorce?

Property in a family trust is off-limits to creditors, but it's not off-limits in a divorce settlement. Family courts can issue orders relating to the assets in a trust. This could result in the assets of a trust being divided up between spouses even when ownership of the trust belongs to an individual.

Keep in mind that how a trust is treated during divorce depends on many factors. This information is general information only and you should consult a legal professional when setting up a trust (and remember that your accountant may not be a qualified legal expert).

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To make sure you get accurate and helpful information, this guide has been edited by Moira Daniels as part of our fact-checking process.
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Senior Money Editor
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Richard Whitten is Finder’s Senior Money Editor, with over eight years of experience in home loans, property, credit cards and personal finance. His insights appear in top media outlets like Yahoo Finance, Money Magazine, and the Herald Sun, and he frequently offers expert commentary on television and radio, helping Australians navigate mortgages and property ownership. Richard started his career in education and textbook publishing in South Korea. He holds multiple industry certifications, including a Certificate IV in Mortgage Broking (RG 206) and Tier 1 and Tier 2 certifications (RG 146), as well as a Bachelor of Education from the University of Sydney and a Graduate Certificate in Communications from Deakin University. See full bio

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2 Responses

    Mel's avatar
    MelMay 24, 2024

    Can I buy an owner-occupier property through a family trust?

      Angus Kidman's headshotFinder
      AngusSeptember 23, 2024Finder

      Hi Mel, A family trust could invest in a property that one of the trust beneficiaries resides in, but strictly speaking they wouldn’t be an owner-occupier – the trust would be the owner. Setting up any trust structure is complex and seeking independent financial and legal advice is important before pursuing this kind of strategy.

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