For decades, Australian property investors have relied on discretionary trusts and companies to build wealth, protect assets, and improve tax outcomes. These structures were often promoted as powerful tools for income streaming, estate planning, asset protection and long-term investment flexibility.
However, the landscape for property investment structuring changed significantly following the 2026 Federal Budget. The Federal Government’s proposed reforms to negative gearing, capital gains tax (CGT), and discretionary trusts have fundamentally altered the tax effectiveness of many traditional ownership strategies. Investors can no longer assume that a trust or company will automatically deliver better tax outcomes.
Instead, structure selection now requires far more careful consideration of:
- The type of property being acquired
- Whether the property is a new build or established dwelling
- Long-term exit strategy
- Expected rental cash flow
- Capital growth expectations
- Asset protection needs
- Future estate planning objectives
What worked well under the old tax rules may produce very different results under the proposed new framework
Why Investors Traditionally Used Trusts and Companies
Property investors have historically used discretionary trusts, unit trusts and companies for several strategic reasons, including:
- Asset protection
- Income streaming to family members
- Estate planning flexibility
- Land tax management
- Limiting personal liability
- Retaining profits at lower corporate tax rates
- Facilitating joint venture investments
- Succession planning across generations
In the right circumstances, these structures can still be highly effective. However, they also introduce additional complexity, compliance obligations and tax risks that many investors underestimate.
One of the most common mistakes is establishing a structure based on generic advice such as:
- “Trusts always protect assets”
- “Companies only pay 25% tax”
- “Everyone should buy property in a trust”
In reality, tax outcomes depend heavily on the investor’s broader financial position and the purpose of the investment.
The Traditional Advantages of Discretionary Trusts
Discretionary (family) trusts have long been popular because they provide flexibility in distributing income and capital gains among beneficiaries.
Historically, trusts allowed families to:
- Stream rental profits to lower-income beneficiaries
- Distribute capital gains tax-effectively
- Retain flexibility each financial year
- Access the 50% CGT discount for assets held longer than 12 months
For high-income professionals and business owners, trusts often delivered substantial long-term tax planning opportunities. Trusts also became popular for intergenerational wealth planning, particularly where families intended to hold property assets for many years.
However, trusts have never been universally suitable for all investors. Negatively geared properties held inside trusts can sometimes create trapped tax losses, particularly where the trust has insufficient income to absorb deductions.
Companies and Property Investment
Companies have traditionally appealed to investors seeking:
- Lower corporate tax rates
- Profit retention
- Development and trading flexibility
- Business asset separation
- Simpler ownership structures
Base rate entities may currently access company tax rates as low as 25%.
For investors generating positive cash flow or operating property development activities, companies can sometimes provide better short-term tax efficiency than personal ownership.
However, companies have always carried a major long-term disadvantage for passive property investors:
- Companies do not receive the 50% CGT discount available to individuals and trusts.
This has historically made companies less attractive for long-term capital growth assets.
How the 2026 Federal Budget Changes the Equation
The 2026 Federal Budget introduced some of the most significant proposed property tax reforms in decades, including:
- Restricting negative gearing on established residential property
- Replacing the 50% CGT discount with an inflation-indexation model
- Introducing a proposed 30% minimum tax framework for discretionary trusts
- Preserving concessions for qualifying new-build housing investments
The Government stated the reforms are designed to redirect investment toward increasing housing supply and improving affordability for owner-occupiers. Importantly, many existing investments are proposed to be grandfathered under transitional arrangements.
Negative Gearing Changes and Their Impact on Structures
Under the proposed reforms:
- Investors purchasing established residential property after Budget night may no longer be able to offset rental losses against salary and wage income from 1 July 2027.
- Instead, losses would generally be quarantined against future rental income or capital gains.
- New-build investments are expected to retain more favourable treatment.
This dramatically changes the economics of highly leveraged residential property investment.
Historically, many investors justified holding negatively geared properties in trusts or personal names because losses could reduce taxable employment income. Under the proposed system, that advantage may be substantially reduced.
Why Discretionary Trusts May Become Less Attractive
Discretionary trusts traditionally worked best where:
- Long-term capital growth was expected
- Future positive gearing was likely
- Families could benefit from income streaming
- Significant CGT concessions were available
However, the proposed 30% minimum tax on discretionary trust distributions has created uncertainty around whether traditional income-splitting benefits will continue in the same way.
For some investors, this may lead to:
- Higher effective tax rates
- Reduced flexibility
- Increased compliance complexity
- Less incentive to use discretionary trusts solely for tax planning
That does not mean trusts are obsolete. They may still remain highly valuable for:
- Asset protection
- Estate planning
- Family succession strategies
- High-risk professions
- Long-term intergenerational wealth planning
But the days of automatically recommending trusts for every property investor may be ending.
Why Companies May Become More Relevant
Interestingly, the Budget changes may make companies relatively more attractive in some situations. If the traditional 50% CGT discount is replaced by inflation indexation, the historical disadvantage companies faced may narrow for certain asset classes.
Companies may now become more attractive where:
- Investors want to retain profits
- Properties are positively geared
- Development or trading activities are involved
- Commercial property is being acquired
- Long-term capital growth is less important than cash flow
However, companies still present major challenges:
- Extracting profits personally may trigger additional tax through dividends
- Companies remain inefficient for some long-term passive investments
- Property development profits may be taxed on revenue account rather than under CGT rules
- Access to small business CGT concessions can become highly technical
New Builds Are Becoming Increasingly Important
One of the clearest policy themes emerging from the Budget is encouraging investment into new housing supply. The Government’s proposed rules preserve more favourable tax treatment for qualifying new-build investments. As a result, structure selection will increasingly depend on the specific type of property being acquired.
Different ownership structures may now be appropriate for:
- Established residential property
- New-build housing
- Commercial property
- Development sites
- Build-to-rent projects
- Property syndicates
This means investors should no longer assume one structure fits every investment strategy.
The Biggest Mistake Property Investors Make
The worst approach is choosing a structure based on generic online advice or social media commentary. There is no universally “best” structure.
A discretionary trust that works extremely well for a high-income business owner may create poor outcomes for a PAYG employee buying their first investment property. Likewise, a company may suit a property developer but become highly inefficient for a long-term buy-and-hold investor seeking CGT concessions.
And once a property is acquired in the wrong structure, fixing the mistake can trigger:
- Stamp duty
- Capital gains tax
- Refinancing costs
- Legal fees
- Accounting costs
- Loss of grandfathered tax treatment
Under the proposed 2026 reforms, those mistakes could become significantly more expensive than under the previous system.
Conclusion
The 2026 Federal Budget has fundamentally reshaped the conversation around property investment structures in Australia. Trusts and companies still have legitimate and important uses, but they are no longer automatic tax-planning solutions.
The proposed restrictions to negative gearing, the overhaul of CGT concessions, and new discretionary trust tax rules mean investors must now take a far more strategic and customised approach.
The optimal ownership structure will increasingly depend on:
- The type of property
- Investment time horizon
- Cash flow expectations
- Asset protection priorities
- Family circumstances
- Exit strategy
- Whether the investment qualifies as a new build
As tax rules become more complex, obtaining tailored legal and taxation advice before purchasing property has never been more important.
Frequently Asked Questions (FAQs)
Are trusts still good for property investment after the 2026 Budget?
Trusts can still provide asset protection and estate planning benefits, but the proposed discretionary trust tax changes may reduce some of the traditional tax advantages.
Will negative gearing still apply to investment properties?
Under the proposed reforms, negative gearing concessions are expected to remain for qualifying new-build properties, while established residential properties purchased after Budget night may lose access to offsetting losses against salary income.
Do companies receive the 50% CGT discount?
No. Companies have never received the 50% CGT discount available to individuals and trusts.
Could companies become more attractive under the new rules?
Potentially yes. If the CGT discount is replaced with inflation indexation, companies may become relatively more competitive for some investors, particularly those focused on cash flow or commercial property.
What is the proposed discretionary trust minimum tax?
The Budget proposes a 30% minimum tax framework for discretionary trusts from 1 July 2028.
Are existing investment properties affected?
Many existing holdings are proposed to be grandfathered under transitional arrangements, although detailed legislation is still evolving.
Is personal ownership becoming more attractive again?
For some investors, yes. Simpler ownership structures may become more efficient where the tax advantages of trusts and companies are reduced.
Can changing ownership structures later trigger tax?
Yes. Moving property between structures can trigger stamp duty, CGT, refinancing costs and legal expenses.
How can we help?
If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
General Advice Warning
The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
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