Should You Still Use a Trust for Property in 2026?

Should You Still Use a Trust to Buy Investment Property in 2026?

The combination of proposed changes to trust tax, capital gains tax, and negative gearing has made the structure question more complicated than it has been for a long time. The answer is not the same for everyone anymore. What works for your property depends heavily on whether the property is positively or negatively geared, who your beneficiaries are, how long you plan to hold it, and when you plan to sell. None of these changes are law yet, but planning ahead matters because some of the cutoff dates are close and some of the decisions take time to model properly.

All changes discussed in this article are proposed legislation only and are not yet law. This article is general information only and does not constitute tax or financial advice. You should speak with your accountant and financial adviser before making any decisions about property structure.

A Quick Recap of What Is Changing

Three proposed changes are interacting with each other in ways that affect how trusts work for property investment.

From 1 July 2028, discretionary trusts will face a 30% minimum tax on income distributed to non-individual beneficiaries like companies. Trusts established before that date can make a fixed distribution election to avoid the minimum tax, but the election locks in how distributions are made for the life of the trust. From 1 July 2027, the 50% capital gains tax discount will be replaced with CPI indexation, and gains will also be subject to the 30% minimum tax on the indexed amount. Negative gearing has been limited to new builds for properties purchased after 7:30pm AEST on 12 May 2026. Properties held across the CGT transition will need a valuation at 1 July 2027 so that gains before and after that date can be calculated separately.

These changes overlap. A trust that has been distributing income to a bucket company loses flexibility if it makes the fixed distribution election. A property that qualified for negative gearing when purchased may not qualify under the new rules if it was not a new build. A property that will be sold after 1 July 2027 needs a valuation at that date even if you do not plan to sell for years.

When a Trust Still Makes Sense for Property Investment

A trust still makes sense when the property is positively geared or expected to become positively geared soon. Income splitting among individual beneficiaries remains valuable because distributions to individuals are not caught by the 30% minimum tax. If you have family members on lower tax rates who can receive distributions, and you are not relying on a bucket company as the primary beneficiary, the trust structure continues to deliver meaningful tax savings.

Asset protection is another reason a trust still works. A trust provides protection from personal creditors in a way that direct ownership does not. If asset protection is a priority for your situation, that benefit may outweigh the tax complications introduced by the proposed changes.

Trusts also remain attractive for investors focused on new builds. New builds retain access to the 50% CGT discount and full negative gearing deductibility under the proposed rules. If your investment strategy is built around purchasing newly constructed property, the trust structure has not lost as much ground as it has for established properties.

Long-term estate planning and wealth transfer objectives may also make a trust the right vehicle regardless of short-term tax outcomes. If your goal is to hold property for decades and pass it to the next generation in a way that minimises tax and probate issues, the trust structure may still be the right choice even if the annual tax treatment is less favourable than it used to be.

When a Trust Is Less Attractive Now

A trust is less attractive when the property is heavily negatively geared and you need those losses to offset wage income. For properties purchased after the cutoff date, negative gearing only applies to new builds. If you were planning to use losses from an established property to reduce your personal tax bill, that advantage is largely gone.

The trust structure has also become less straightforward if your main strategy has been to distribute income to a bucket company. The fixed distribution election creates a double taxation risk if you later want to distribute to individuals instead of the company, and it locks you into a structure that may not suit your circumstances five or ten years from now. The flexibility that made this strategy attractive in the past is no longer available in the same way.

If you plan to sell within a few years, the CGT outcome under the new rules may be materially worse than under current rules. The indexation method may deliver a better result than the 50% discount for long holding periods, but for shorter holding periods the discount was usually more generous. If your exit strategy involves selling within five years of the 1 July 2027 transition, you need to model both methods carefully before committing to a trust structure.

The simplicity and cost of direct individual ownership may also outweigh the benefits for a straightforward single-property investor. Trusts come with annual accounting costs, trust deed requirements, and compliance complexity. If the tax benefits have narrowed, the administrative burden may no longer be justified.

The Key Questions to Work Through With Your Adviser

The right structure depends on specific answers to specific questions. Is the property positively or negatively geared now, and how will that change over time as rents increase and the loan is paid down? Who are the beneficiaries and what are their likely tax rates over the holding period? Do you use a bucket company, and does the fixed distribution election make sense for your situation given the trade-off between avoiding the minimum tax and losing distribution flexibility?

What is your planned exit strategy and when do you expect to sell? If you hold the property across the 1 July 2027 CGT transition, have you planned for the valuation requirement and understood how the two calculation methods will apply to your property? Is your trust already in existence at 1 July 2028, making it eligible for the fixed distribution election, or will you need to establish it before that date? Do your estate planning and succession objectives favour a trust regardless of the tax changes?

These questions do not have default answers anymore. What worked for most investors in the past may not work for your specific situation now.

The Importance of Modelling Your Specific Numbers

General rules of thumb are less reliable than they were. The right answer depends on the specific numbers for your property, your income, your family structure, and your time horizon. A small difference in assumptions about holding period, rental yield, or capital growth can change the conclusion significantly.

Consider an investor who purchases an established property with an expected rental yield of 4% and expects to hold it for 15 years. Under the old rules, the trust structure would deliver clear benefits through income splitting and the 50% CGT discount. Under the new rules, the property does not qualify for negative gearing, the CGT treatment depends on which side of the 1 July 2027 transition most of the gain falls, and the trust may trigger the 30% minimum tax if income is distributed to a company. The difference in after-tax outcome between a trust and direct ownership may be tens of thousands of dollars depending on how those variables play out.

Modelling both the old and new rules, and comparing multiple structure options, is now necessary before making any decision. Your accountant and financial adviser need to run the numbers for your situation before you commit to a structure.

What to Do Before 1 July 2028

Review your existing trust deed and beneficiary arrangements. Understand whether your trust is likely to be affected by the minimum tax. Less than 10% of active small businesses are expected to be affected in any given year, but if you distribute income to a company regularly, you are more likely to be in that group.

If you use a bucket company, model the impact of making the fixed distribution election versus restructuring versus doing nothing. The election avoids the minimum tax but locks in your distribution pattern. Restructuring may involve stamp duty and CGT, but rollover relief is available from 1 July 2027 for a three-year window. Doing nothing means accepting the 30% minimum tax in years where you distribute to the company, but retains full flexibility.

Plan for the valuation requirement at 1 July 2027 if you hold property that will be sold after that date. The valuation does not need to be formal, but it needs to be defensible if the ATO reviews your CGT calculation later. Get the valuation done at the time, not years later when you sell.

Do not restructure hastily. The rollover relief available from 1 July 2027 provides a three-year window to move assets out of a trust without triggering immediate CGT. If you are uncertain about the right structure, wait until the legislation is finalised and the numbers are clear before making irreversible decisions.

Arrange a review of your current or planned property structure with your accountant and financial adviser well before 1 July 2028. These changes are still being finalised, so stay close to your adviser as the legislation progresses through Parliament. If you are purchasing an investment property in the next 12 months, make sure the structure decision is informed by the proposed rules, not the old ones.

Call one of our team or book an appointment at a time that works for you. We work with accountants and financial advisers regularly and can help you understand how the proposed changes affect your borrowing capacity and loan structure before you commit to a property purchase.

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