For years, the wealthy Australian families have effectively used trusts to hand down assets from one generation to the other, without incurring any stamp duty or capital gains tax. However, the opposition recently unveiled its plan of changing the way discretionary trusts are taxed to prevent the rich from evading taxes. Labour’s ire, in fact, is expressly directed against discretionary trusts, wherein the trustee can exercise discretion in sharing the trust income between the beneficiaries to maximise tax benefit.


Contrary to popular opinion, the concept of setting up a trust is not limited to the wealthy Australians. Of late, many people are exploring the option of setting up a trust to purchase an investment property that offers the dual benefit of asset protection and minimal tax liability.

What is a trust?

A trust is a financial structure that allows a person or a company to hold and manage assets on behalf of another person or a group of people. Under a trust arrangement, which is governed by a trust deed, the trustee holds and controls the assets for the benefit of the beneficiaries of the trust. There are several kinds of trust structures that are used by businesses and investors. However, family trusts or discretionary trusts remain the most popular with property investors.

What is a family trust or a discretionary trust?

A family trust is most commonly used by property investors to hold the assets of the family. The assets in the trust are not owned by any individual but the trust itself. Subject to the rules of the trust, the trustee can distribute the income and assets of the trust between the beneficiaries in any manner, in order to minimise the tax payable by the family members. 

Family trusts can borrow money from a lender to invest in property that will be held in the name of the trust on behalf of all the beneficiaries. However, not all lenders accept trust arrangements for lending.

Xavier, a mortgage broker, explains that “some lenders do not lend when the purchasing entity is a trust… and, with some others, it depends if the trustee is a company or an individual.”

Fortunately, some lenders are more flexible than others, and mortgage brokers at HashChing can help you access family trust home loans suitable for your situation.

“When you apply for a loan under a family trust, the lender needs to see your trust deed and the trustee entity details. We can make the process simpler for you after understanding a few more details about your proposed structure as well as your personal and financial status,” explains Jay, an expert mortgage broker.

“We have access to lenders who are still offering the same interest rate to trusts as for individuals. We can also offer a loan product where you can bring down your home loan interest close to 2% depending on the home loan and investment loan amounts on your name at present,” he adds.

A trust can be set up online quickly. Once the trust deed governing the trust has been duly signed, the settler, who is an unrelated party, ought to place a small amount of money in the trust. The state government must stamp the trust deed post this step.

Buying an investment property through a trust offers the following advantages:

  • Income Sharing – Under a family trust arrangement, a trustee can split the income of the trust between the beneficiaries in a tax-effective manner each year. Moreover, once a trust holds a property for over a year, 50% discount on capital gains tax is applicable.
  • Asset Protection – As the assets under a trust are held by the trust and not any individual, the assets are protected from creditors if any of the beneficiaries go bankrupt.
  • Estate Planning – A trust deed underlies the functioning of each trust and outlines how each beneficiary’s share would devolve on death. This ensures that the property is passed on between generations without any legal battles or relations turning sour.

Buying an investment property under a trust

It is important to set up an appropriate ownership structure when buying an investment property for asset protection and maximum tax benefit.

Setting up a trust structure to own an investment property is a complex procedure. Further, a family trust does not allow you to share the losses between the beneficiaries and the benefit of negative gearing is not applicable if the trust is making a rental loss. 

In addition, many banks are not comfortable lending to trusts. Several others might charge higher fees as compared to regular loans, keeping in mind the complexity of the loan structure. Thus, even though a trust structure could help you save on taxes, it is worth consulting a financial advisor before making a decision.

To apply for a trust loan, you need to provide a certified copy of the trust deed, tax returns filed by the trust and ID proofs for all the members of the trust. It is best to speak with a broker to understand whether a trust loan is right for you or not. Mortgage brokers at HashChing will get you in touch with lenders who provide trust loans at competitive rates without the need of any guarantors. Get in touch now to know more, or fill in the contact form below and we will put you in touch with an experienced broker.

By Vidhu Bajaj
HashChing Content Writer


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