For years, trusts and companies have been popular structures for Australians building property portfolios. Investors have been attracted by the promise of asset protection, tax flexibility, estate planning benefits, and lower tax rates.
But after the 2026 Federal Budget, the conversation around property structures has changed dramatically.
The proposed reforms to negative gearing, capital gains tax (CGT), and discretionary trusts mean investors can no longer choose structures based purely on “tax minimisation”. The structure that worked well five years ago may now produce very different outcomes going forward.
The reality is that trusts and companies still have legitimate uses for property investment, but the margin for error is now much smaller.
Why investors use trusts and companies
Traditionally, property investors have used discretionary trusts, unit trusts, and companies for several reasons:
- Asset protection
- Income streaming to lower-tax family members
- Land tax planning
- Estate planning flexibility
- Limiting personal liability
- Retaining profits at lower company tax rates
- Facilitating joint ventures between unrelated parties
In the right circumstances, these structures can still be highly effective. But they also come with complexity, compliance costs, and tax traps that many investors underestimate.
One of the biggest mistakes investors make is establishing a trust or company after hearing generic advice such as “trusts protect assets” or “companies only pay 25% tax”.
Tax outcomes depend heavily on the type of property, the investor’s income, whether the property is positively or negatively geared, long-term exit strategy, and now, whether the property qualifies as a “new build” under the proposed Budget rules.
The traditional tax advantages
A discretionary trust has historically offered flexibility because income and capital gains can be distributed among beneficiaries each year.
This allowed families to direct rental profits or capital gains to lower-income adult family members, potentially reducing overall tax.
Trusts also provided access to the 50% CGT discount where assets were held for more than 12 months.
Companies, meanwhile, offered a capped tax rate – generally 25% for base rate entities – which appealed to higher-income earners wanting to retain profits and reinvest.
However, companies do not receive the 50% CGT discount available to individuals and trusts. That has always been one of the major long-term disadvantages of buying appreciating property through a company.
The Budget 2026 reforms change the equation
The Federal Budget announced some of the most significant proposed property tax reforms in decades. Key measures include:
- Restricting negative gearing on established residential properties from 1 July 2027
- Replacing the 50% CGT discount with an inflation-indexation model
- Introducing a proposed 30% minimum tax framework for discretionary trusts from 1 July 2028
- Preserving concessions for qualifying new-build housing investments
Importantly, many existing holdings are proposed to be grandfathered.
Under the proposed negative gearing changes, investors purchasing established residential properties after Budget night will eventually no longer be able to offset rental losses against salary and wage income. Instead, losses would generally be quarantined against future rental income or capital gains.
This significantly reduces one of the key tax benefits that previously justified holding highly leveraged property investments in discretionary trusts or personal names.
See also: How negative gearing works and when it makes financial sense
Why trusts may become less attractive for some investors
Historically, discretionary trusts worked particularly well where:
- The property was expected to become positively geared over time,
- Substantial capital growth was anticipated, and
- The family group could benefit from streaming future gains.
But the proposed trust reforms may reduce some of that attractiveness.
The proposed 30% minimum tax on discretionary trust distributions has created uncertainty around whether the traditional income-splitting advantages of trusts will continue in the same way.
For some investors, this could mean higher effective tax rates, reduced flexibility, and less incentive to use discretionary trusts solely for tax planning.
That does not mean trusts are “dead”. Far from it.
Trusts may still remain appropriate where asset protection is a priority, there are multiple family beneficiaries, estate planning flexibility matters, or significant long-term capital growth is expected.
But investors are increasingly needing to justify trusts based on broader commercial and legal outcomes, not just tax savings.
Companies: More relevant in some scenarios
Interestingly, the Budget changes may make companies relatively more attractive in certain circumstances.
Because if the 50% CGT discount is effectively replaced by an inflation-indexation model, the historical disadvantage companies faced from missing out on the CGT discount may narrow for some asset classes.
See also: Understanding CGT for property investors
Companies may become more appealing where:
- Investors want to retain profits
- Properties are expected to generate positive cash flow
- Development or trading activities are involved
- Investors prioritise lower ongoing tax rates over CGT concessions
However, there are still major pitfalls.
Profits trapped in companies generally require dividends to extract funds personally, which can create additional tax.
Companies are also usually poor structures for long-term passive capital-growth investing where assets may eventually be sold.
And importantly, using companies for property development can expose profits to full revenue account taxation rather than CGT treatment depending on the circumstances.
New builds may become the major focus
One clear theme emerging from the Budget is that the government wants to redirect investor demand toward increasing housing supply.
The proposed rules preserve more favourable tax treatment for qualifying new builds. That means structure selection will increasingly depend on the type of property being acquired.
Investors purchasing established residential property, new builds, commercial property, or development sites may all require different ownership structures going forward.
We are already seeing investors reassess whether:
- Companies may work better for commercial property,
- Trusts still make sense for long-term family wealth, or
- Personally owned assets may become simpler and more efficient.
The biggest mistake investors make
The worst approach is choosing a structure purely based on what someone on social media says is “the best”.
There is no universally perfect structure.
A trust that works brilliantly for a high-income medical specialist may be disastrous for a PAYG employee buying their first investment property.
Likewise, a company may work well for a property development business but create poor outcomes for a long-term buy-and-hold investor.
The 2026 Budget reforms reinforce the importance of getting advice before purchasing property, not after contracts are signed.
Because once a property is acquired in the wrong structure, fixing it can trigger stamp duty, CGT, refinancing costs, and substantial professional fees.
And under the proposed new rules, those mistakes may become far more expensive than they were under the old system.
Image by Artful Homes on Unsplash
