If you own rental property in Australia, the structure you choose can change your tax bill by tens of thousands of dollars each year. One real client case study found that holding a duplex development in a family trust instead of a company saved over $85,000 in tax on a single project. That’s not a small difference — it’s the kind of gap that determines whether an investment is worth keeping or selling.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Australia’s tax rules for rental property are shifting. Proposed changes to negative gearing and the capital gains tax discount could reshape how investors structure their portfolios. The Parliamentary Budget Office estimates that around 306,000 investors would be affected under a phase-out of negative gearing for those with more than one property. Whether you’re buying your first rental or managing a portfolio, the structure you pick now determines what happens when those rules change. Here’s what you actually need to know.
What This Article Covers
Before diving into the numbers, it helps to understand one central concept that runs through every decision here.
What I tend to notice is that most investors focus on rental income tax rates and forget about the exit. The CGT discount is where the real money is lost or saved, especially if you’re holding property for the long term.
Rates, Thresholds, and What They Actually Cost
The tax treatment of rental property in Australia depends on three main factors: your ownership structure, your income level, and how long you hold the asset. Each combination produces a different outcome. The table below shows how the four most common structures compare across the key tax variables.
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| Structure | Tax Rate on Rental Income | CGT Discount Available? | Income Splitting? | Asset Protection? |
|---|---|---|---|---|
| Individual | Up to 47% (marginal rate) | Yes (50%) | No | No |
| Company | 25–30% (flat) | No | No | Yes |
| Family Trust | Up to 47% (distributed to beneficiaries) | Yes (50%) | Yes | Yes |
| SMSF | 15% (0% in pension phase) | Yes (50%) | No | Yes |
The practical difference is stark. Take a high-income earner on the top marginal rate of 47% who buys a rental property in their own name. Every dollar of rental income is taxed at 47 cents. If they instead hold the same property through a family trust and distribute the income to a lower-earning family member on a 19% rate, the tax on that same dollar drops to 19 cents. Over a year with $50,000 in net rental income, that’s a difference of $14,000.
Now layer in the CGT discount. If that same investor sells the property after five years with a $300,000 capital gain, an individual or trust pays tax on only $150,000 of that gain. A company pays tax on the full $300,000. At a 30% company rate, that’s $90,000 in tax versus $70,500 for an individual on the top marginal rate — a $19,500 difference. And if the discount is reduced to 33%, the taxable portion rises to $201,000, pushing the individual’s tax to $94,470. The structure that looked best at purchase can become the worst at sale.
Land tax adds another layer. Each state calculates land tax on a per-owner basis. Holding multiple properties in a single trust or company can push you past the tax-free threshold faster than holding them individually. In New South Wales, the general threshold for 2024–25 is $1,075,000 in total taxable land value. A family trust holding three properties worth $400,000 each would exceed that threshold and trigger land tax on the combined value, whereas three individuals each holding one property might each stay under the threshold.
Errors and Gaps
Choosing a company structure for long-term holds
The flat company tax rate of 25–30% looks attractive on paper. But companies don’t qualify for the 50% CGT discount. If you’re holding a property for more than 12 months and expect significant capital growth, a company structure can cost you tens of thousands more in tax at sale than a trust or individual ownership. The case study from New Leaf Advisory showed a client developing a duplex in a company paid full income tax and GST on profits with no CGT discount, while a similar asset in a family trust saved over $85,000. If you’re set on a company, consider whether you’ll sell the shares rather than the property — share sales can sometimes be structured more tax-efficiently, especially for NZ-based owners.
Ignoring transfer pricing from day one
If you’re structuring through a New Zealand holding company or another offshore entity, transfer pricing rules apply immediately — even if the Australian company is making losses. The ATO can adjust intercompany charges for management fees, royalties, and service fees, creating double taxation. Proper documentation from the start can reduce your effective tax rate by 10–20% while staying compliant. The cost of professional structuring — typically $10,000 to $30,000 upfront — is minimal compared to annual tax inefficiencies that can run $50,000 to $500,000 or more.
Assuming existing rules won’t change
The proposed negative gearing cap and CGT discount reduction are not law yet, but the PBO has modelled their impact in detail. Grandfathering would protect existing portfolios at the point of enactment, but future acquisitions beyond the threshold would face new rules. If you’re planning to expand a portfolio, the economics of buying a third or fourth property could change fundamentally. The 15–30% reduction in overall return that PBO modelling found is not a small adjustment — it’s the difference between a viable investment and one that barely breaks even.
Overlooking land tax aggregation across structures
Land tax is calculated per owner, per state. If you hold properties in multiple trusts or companies, each entity gets its own land tax threshold. But if you hold them all in one trust, the combined value is assessed together, potentially pushing you into higher tax brackets. A common mistake is consolidating properties into a single trust for simplicity, only to discover the land tax bill is three times what it would be under separate ownership. Before transferring properties between structures, check the land tax rules in your state — the savings on income tax can be wiped out by higher land tax.
How to Choose and Set Up Your Rental Structure
Match the structure to your holding period and exit plan
If you plan to hold for less than five years and sell, the CGT discount matters less because the gain is smaller. A company structure with its lower ongoing tax rate might make sense. If you’re holding for 10+ years and expect significant capital growth, a family trust or individual ownership preserves the 50% CGT discount. The key question is not just what you pay in tax each year, but what you’ll pay when you sell. For NZ-based owners, the lack of a broad capital gains tax on share disposals in New Zealand is a major advantage — selling shares in an Australian company held through a NZ holding company can be tax-free in NZ, subject to exceptions.
Use a family trust for income splitting and CGT discount
A discretionary trust lets you distribute rental income to family members on lower tax brackets. If you’re on the 47% marginal rate and your partner earns $40,000, distributing $30,000 of net rental income to them saves you roughly $8,400 in tax compared to taking it yourself. The trust also qualifies for the 50% CGT discount. The downsides are higher compliance costs — expect $1,500–$3,000 per year for trust accounting and tax returns — and losses are trapped inside the trust, meaning you can’t offset them against your personal salary income.
Consider an SMSF for long-term retirement holdings
A self-managed super fund pays only 15% tax on rental income (0% in pension phase) and qualifies for the 50% CGT discount. But SMSFs have strict borrowing rules — you can’t use a standard mortgage, only a limited recourse borrowing arrangement. Development options are limited, and the property cannot be used privately. This structure works best for commercial property or long-term residential holds where the lower tax rate compounds over decades. The setup cost is typically $2,000–$5,000, plus annual admin fees of $1,000–$3,000.
Plan for the proposed rule changes now
If the negative gearing cap passes, investors with more than two properties will need to restructure. One option is to hold properties in separate trusts or companies, each staying under the cap. Another is to shift from negatively geared to positively geared properties — buying in areas with higher rental yields so the property generates income rather than losses. The CGT discount reduction, if it happens, makes the choice of structure even more important. A trust or individual ownership preserves whatever discount remains; a company loses it entirely. If you’re considering a company structure, weigh the ongoing tax savings against the potential exit tax cost.
For those navigating these decisions, getting professional advice early is worth the cost. Services like JustAnswer Real Estate Law can help clarify property transaction and structuring questions, while JustAnswer Business covers tax and accounting considerations for your specific situation.
Frequently Asked Questions
Can I switch from individual ownership to a trust after buying? ▾
Does the 50% CGT discount apply to companies? ▾
What happens if I miss the transfer pricing documentation deadline? ▾
Are existing negatively geared properties grandfathered under the proposed cap? ▾
Can I use a trust to avoid land tax surcharges? ▾
What’s the best structure for a NZ resident buying Australian property? ▾
Your Structure Today Determines Your Tax Tomorrow
The proposed changes to negative gearing and the CGT discount are not hypothetical — the PBO has modelled their impact, and the budget cost of both concessions is $20 billion per year. Whether those changes pass or not, the structure you choose now locks in your tax treatment for the life of the investment. A company saves you tax each year but costs you at sale. A trust costs more to run but preserves the CGT discount and lets you split income. The right answer depends on your holding period, your income, and your exit plan — not on what looks cheapest this year.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read Essential Tips for Forecasting Rental Yield in New Zealand.
Sources and Further Reading
NZ Investors: Are You Making These Common Mistakes? — A practical look at the errors NZ property investors make, including structuring and tax planning gaps.
Discover the Best Neighborhoods for Real Estate Investment in New Zealand — Location analysis that complements your structuring decisions with market-specific data.
New Leaf Advisory (2024). How to Structure Your Property Investment for Maximum Tax Efficiency in Australia. 🔗
Property Investment Professionals (2025). Negative Gearing Cap & CGT Discount Changes Australia Investors. 🔗
Parliamentary Budget Office (2025). PBO ECR 2025-3414: Phase out negative gearing and CGT tax concessions for property investors with more than one investment property. 🔗
Fairhaven Advisory (2024). Tax-Efficient Structuring NZ-AU. 🔗
