Family Trust Gearing After Tax Reforms: What Still Works Now

Gearing through a family trust still works in Australia, but new tax and lending rules mean it rarely stacks up purely for negative gearing or capital gains tax tricks. From 1 July 2027, many residential rental losses will be quarantined and the 50% CGT discount for individuals and trusts will be replaced with CPI indexation, while banks are shading trust income more heavily for borrowing.

This guide shows when a geared family trust can still make sense, when it probably does not, and the concrete numbers you should run before you buy anything.

How cashflow, tax and lending interact when gearing through a family trust.

1. What has actually changed for geared family trusts?

1.1 Key tax rule shifts

Under the 2026–27 reforms (Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and related Budget measures):

1. Negative gearing limits: For many established residential properties bought after 12 May 2026, rental losses are expected to be quarantined to property income only, not offset against wages.
2. CGT discount removed: From 1 July 2027, individuals and most trusts lose the 50% CGT discount and move to CPI indexation of cost base instead (facts 12–13).
3. Trust minimum tax signal: Discretionary trusts face tighter scrutiny and a minimum effective tax settings on distributed investment income, reducing the benefit of shifting income to very low‑tax adult beneficiaries.

Broadly, this means a family trust buying an established rental today is unlikely to give you the old combination of large wage-offset tax refunds plus a half‑taxed capital gain later.

For a fuller overview of how these rules hit trusts, see /insights/family-trusts-bucket-companies-practical-playbook-2026.

1.2 Lending changes for trusts

On the lending side, most banks and non‑banks now:

• Apply the standard APRA 3% serviceability buffer to all loans, including those to trustees.
• Shade trust distributions (often using only 60–80% of last year’s income in servicing calculators).
• Want full trust deed, financials and distribution minutes before approving larger loans.

The result: a geared investment in a family trust usually reduces your borrowing power compared with buying the same asset in your own name.

2. Negative gearing in a trust: what’s left?

2.1 The end of wage-offset negative gearing for many

Under the latest negative gearing reforms, explored in /insights/latest-budget-changes-negative-gearing-investment-properties:

• Existing established properties are largely grandfathered.
• New builds still get relatively favourable treatment.
• Established properties bought after 12 May 2026 will have many losses quarantined to rental income from 1 July 2027.

If a trust buys an established unit in 2027 with a $10,000 rental loss, that loss is likely trapped in the trust’s property bucket until future rental profits arise or a gain is realised. It does not reduce your personal PAYG tax.

2.2 Worked example: trust vs personal name

Assume in 2028:

• Purchase price: $800,000 established unit
• Loan: $640,000 (80% LVR), interest‑only 6.5%
• Rent: $780/week ($40,560 p.a.)
• Other costs: $15,000 p.a. (rates, insurance, maintenance, management, etc.)

Cashflow before tax

• Interest: $41,600
• Other costs: $15,000
• Total outgoings: $56,600
• Net rental loss: $16,040

This simplified example shows why trust gearing feels more expensive in the early years under the new rules: you still pay the cash loss, but may not get any immediate tax benefit.

For a first‑time investor, that makes it even more important to follow the process in /insights/first-time-investors-reduced-negative-gearing-benefits: model zero wage-offset negative gearing up‑front.