Using a Trust to Buy Investment Property in Australia

Many property investors use trusts — most commonly discretionary (family) trusts — to hold investment properties. The main attractions are asset protection and flexibility in distributing income to lower-earning beneficiaries, which can reduce the overall tax burden.

But trusts come with real lending constraints that you need to understand before committing to the structure.

Types of Trusts Used for Property

• Discretionary (Family) Trust — Most common. The trustee has discretion over who receives income and capital. Excellent for income splitting but provides less asset protection than a unit trust.
• Unit Trust — Beneficiaries hold fixed units (percentages). Often used in joint ventures. Provides clearer asset protection.
• Hybrid Trust — Combines features of both. Less common now due to ATO scrutiny.
• SMSF Trust — Self-managed super fund. Separate category with strict rules (covered separately).

Why Investors Use Trusts

1. Income Distribution

A discretionary trust can distribute income to beneficiaries in the lowest tax brackets — often a spouse or adult children. If the trust earns $60,000 in rental profit, distributing it to a beneficiary earning $40,000 means it's taxed at a lower rate than if it all went to the high-income earner.

2. Asset Protection

Property held in a trust is generally not considered a personal asset of the individual beneficiaries. This provides protection in the event of business failure, litigation, or bankruptcy — though the protection isn't absolute.

3. Estate Planning

Trust assets can be transferred to beneficiaries without triggering certain taxes, making it a useful estate planning tool for multi-generational wealth.

Trust Lending: The Key Constraints

Trusts are legal entities but they're not natural persons — lenders typically require the trustee to provide a personal guarantee. This means:

• The trustee (usually an individual or a company) signs the loan documents
• The trustee is personally liable if the trust can't service the debt
• Some lenders won't lend to trusts at all

Which Lenders Accept Trust Borrowers?

Not all lenders accommodate trust structures. The landscape:

• Major banks (Big 4) — All lend to trusts, but with stricter documentation requirements
• ING, Macquarie, ME Bank — Generally comfortable with trust lending
• Many smaller lenders — May not accept trust applications at all

Working with a broker is particularly valuable for trust lending, as they know which lenders have the most flexible assessment criteria and don't apply loading to trust applications.

Documentation Required

For a trust home loan, lenders typically need:

• Certified copy of the trust deed
• Personal identification for all trustees and directors (if corporate trustee)
• Tax returns for the trust (if established)
• Personal tax returns for the trustee/guarantors
• Bank statements for both the trust and the trustees personally

Can a Trust Get an Investment Property Loan?

Yes — but it will be assessed as an investment loan (not owner-occupied), with the associated higher rates and tighter LVR restrictions. The trustees sign as guarantors personally, and their full financial position is assessed.

Is a Trust Right for You?

Trusts add setup and ongoing administrative costs (annual accounting, trustee company costs). They make most sense when:

• You have a significant income differential between family members
• You're concerned about asset protection
• You're building a multi-property portfolio

Always get tax advice from your accountant before establishing a trust — the borrowing implications need to be considered alongside the tax benefits.