Buying an investment property in a trust or company structure can offer tax flexibility and asset protection that individual ownership does not provide. It can also mean fewer lenders willing to consider your application, stricter assessment criteria, and higher ongoing costs. Understanding how each structure works, and what it means for your borrowing capacity, is worth doing before you commit to an entity that can be difficult and costly to change later.
Why some investors use a trust or company to buy property
The two most common reasons investors look beyond individual ownership are asset protection and tax efficiency. A property held in a trust can be shielded from personal creditors in certain circumstances, which appeals to business owners and professionals in high-liability roles. A company structure provides a distinct legal entity, meaning the company’s property is separate from a shareholder’s personal assets.
Tax efficiency is the other main driver. A family discretionary trust allows income from the property to be distributed to different beneficiaries each year, which can reduce the total tax paid across a family group. A company pays corporate tax at 25% (for base rate entities) or 30%, which may be lower than the top marginal individual rate of 47% for high-income earners. Readers exploring these structures for tax purposes should seek specific advice from a qualified accountant or tax adviser, as the outcomes depend heavily on individual circumstances.
How a discretionary trust works for property ownership
In a family discretionary trust, the trustee holds the property on behalf of the beneficiaries. The trustee is typically an individual or a corporate trustee. Each year, the trustee decides how to distribute income from the trust among beneficiaries, directing distributions toward those on lower marginal tax rates to reduce the group’s overall tax bill.
One important CGT consideration: a discretionary trust can potentially pass the 50% capital gains tax discount through to individual beneficiaries when a property is sold, which is one of the advantages trusts hold over company structures. However, this only works if the beneficiary receiving the distribution is an individual (not a company or non-resident trust), and the mechanics depend on the trust deed and how the gain is distributed. The tax outcome of a property sale through a trust is significantly more complex than through individual ownership, and getting this right requires a tax specialist.
Can a trust own a property with a mortgage in Australia?
Yes, but the trust deed must explicitly grant the trustee the power to borrow. Many lenders will check for this before considering the application. If the deed does not contain borrowing powers, some lenders will decline outright. A solicitor can advise on whether a deed needs to be varied before you apply.
How a company structure differs
A company that owns property is a separate legal entity and pays corporate tax on any profits. Unlike a trust, a company cannot distribute income flexibly to reduce tax across a family group. Profits either stay in the company or are paid as dividends to shareholders, who then pay tax on those dividends (with franking credit offsets for tax already paid at the corporate level).
Companies also do not access the 50% CGT discount on property sales. For long-term buy-and-hold investors planning to sell after many years, this is a material consideration. A gain that would attract a 50% CGT discount in individual hands is taxed in full at the company level before any distribution to shareholders.
Where companies can be advantageous is in accumulating retained earnings at a lower corporate tax rate and in the asset protection they provide as a legally distinct entity. For some business structures, the company also makes it easier to bring in partners or transfer ownership of a share of the property without triggering the costs and complications of a full sale.
What these structures mean for your home loan application
Not all lenders offer loans to trusts or companies, and those that do often assess them differently from individual borrowers. Most major banks will lend to a family discretionary trust but may apply stricter loan-to-value conditions, with maximum LVRs of 80% being common. This means no lenders mortgage insurance is available in most cases, and a larger deposit is required.
Lenders also look closely at the trust deed itself, particularly whether it grants explicit borrowing powers to the trustee. A deed that does not contain these powers can result in a declined application regardless of the borrower’s financial strength. Getting the deed reviewed by a solicitor before you begin the lending process avoids this problem.
Company borrowers face similar constraints. Personal guarantees from company directors are often required, which means the debt effectively sits on the director’s personal credit profile regardless of the company structure. The company’s income, expenses, and retained earnings are assessed separately, and lenders may treat retained profits differently from a salary or trust distribution.
Working with a mortgage broker who has experience in commercial and complex lending structures can make a real difference in this space. Not all brokers regularly deal with trust and company setups, and the range of suitable lenders is narrower than for individual borrowers.
Key Takeaways
- Trusts and company structures can offer tax flexibility and asset protection not available through individual ownership, but they add complexity and cost.
- Companies cannot access the 50% CGT discount on property sales. A discretionary trust can potentially pass this discount through to individual beneficiaries, though the outcome depends on the structure and who receives the distribution.
- Not all lenders offer loans to trusts or companies. Those that do often cap LVR at 80%, meaning no lenders mortgage insurance is available.
- Trust deeds must explicitly grant the trustee power to borrow. A deed without this provision can result in a declined application regardless of financial strength.
- Company directors are often required to provide personal guarantees, meaning the debt remains on their personal credit profile.
- Tax and legal implications vary significantly by structure and individual situation. Always speak with a qualified accountant and solicitor before choosing an entity structure.