Why CGT reform could end the 25-year reign of the family trust in residential property
The reform package Treasury is reportedly modelling could close a 25-year structural gap. Here's the arithmetic, the caveats, and what we're seeing from residential property investors ahead of the 12 May federal budget.
What this analysis concludes
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01The trust has been the residential default for 25 years. Since 1999, the family trust has been the conventional structure for sophisticated residential property investment, on the strength of the 50% CGT discount and distribution flexibility.
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02The CGT break-even sits at a 33% discount. Above that level, the personal-or-trust structure produces a lower CGT outcome than the company. Below it, the company structure produces a lower CGT outcome on retained gains.
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03Reform proposals could push us to or through that break-even. Levels currently in pre-budget discussion include 33% (PBO modelled) and 25% (Grattan, 2019 Labor). At either level, the structural arithmetic for new acquisitions changes for the first time since 1999.
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04Around 219,000 Australians sit at the centre of the shift. ATO data shows this many taxpayers hold three or more investment properties, disproportionately at the higher end of the income distribution, and they are the cohort most likely to face the structural decision on a new acquisition.
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05Negative gearing reform would compound the case. Proposed limits on negative gearing against salary income for investors holding multiple properties would reinforce the company structure case for portfolio investors, on top of any CGT discount change.
Important The information on this page is general information only. It does not constitute financial, tax, or legal advice. Readers should consult a licenced financial advisor before making any decisions.
Why the trust has been the Australian default for 25 years
Since September 1999, when the Howard Government replaced indexation with a flat 50% capital gains tax discount for assets held longer than 12 months, the structural conversation for residential property investment has been remarkably settled. In our work arranging finance for property investors across both commercial and residential, we rarely see a sophisticated investor reach for anything other than personal name or a discretionary trust.
Personal name is the simplest option. One tax return, main residence concessions where applicable, a 50% CGT discount on eventual sale, and minimal setup cost. For the majority of single-property investors, it works perfectly well, and it remains the structure we see most commonly across our residential client base.
Trusts, typically discretionary family trusts with corporate trustees, emerged as the conventional choice for investors building property portfolios. They get the same 50% CGT discount through their beneficiaries. They add asset protection. Importantly, they allow flexibility to distribute rental income and capital gains to family members on lower tax brackets, reducing the overall family tax bill in ways personal name simply cannot match. For a large cohort of multi-property investors, the trust has been, and remains, the conventional answer.
Companies, by contrast, have been structurally uncompetitive for residential property investment throughout this entire period. A company holding an investment property pays tax on capital gains at its flat 30% rate with no CGT discount available. Against a trust delivering a 22.5% effective CGT rate to a top-marginal beneficiary, or 15% to a beneficiary on 30%, the company structure has looked actively wasteful. In our 15+ years arranging finance, we can count on one hand the number of residential investment purchases where a client's accountant has recommended a company structure on tax grounds alone.
This is the orthodoxy that has shaped a generation of structural commentary. Residential investment in a company has been close to taboo — until, perhaps, now.
A short history of the CGT discount and reform proposals
The 50% capital gains tax discount has been a fixture of Australian investment property structuring since 1999. The proposals being discussed in 2026 are not new ideas; they sit on a documented policy timeline going back two decades.
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1985
Capital gains tax introduced
The Hawke Government introduced CGT for the first time in Australia, applying to assets acquired from 20 September 1985. Indexation of the cost base for inflation was used to calculate the taxable gain. Assets acquired before this date were grandfathered and remain CGT-free today.
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1999
50% discount replaces indexation
The Howard Government replaced indexation with a flat 50% CGT discount for individuals and trusts holding assets longer than 12 months. Companies were excluded from the discount. This is the structural framework that has anchored property investment commentary for the past 25 years.
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2010
Henry Tax Review recommends 40% discount
The Henry Tax Review (Australia's Future Tax System Review) recommended reducing the CGT discount from 50% to 40%. The recommendation was not adopted, but it established 40% as a credible alternative discount level in Australian tax policy discussion.
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2016
Grattan Institute proposes 25% discount
The Grattan Institute published modelling supporting a reduction of the CGT discount to 25%, arguing this would improve revenue and reduce structural bias toward property investment. This is one of the levels being discussed in current pre-budget commentary.
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2019
Labor takes 25% discount and negative gearing reform to election
The 2019 Labor election platform proposed reducing the CGT discount to 25% and limiting negative gearing to new properties only. Labor lost the election. The defeat was widely attributed in part to the property tax proposals, but the policies themselves remained in active discussion in subsequent years.
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2023
Parliamentary Budget Office models reform options
The Parliamentary Budget Office published costings of various CGT discount reform options, including reductions to 40% and 25%, providing official revenue estimates for each. PBO costings have since become a standard reference point for parliamentary debate on CGT reform.
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2026
Pre-budget reform discussion intensifies
Reform of the CGT discount and negative gearing arrangements is again under active pre-budget discussion ahead of the 12 May 2026 federal budget. Levels under discussion include 40%, 33%, and 25%, with some advocacy voices calling for full abolition. None are confirmed government policy at the time of writing.
Sources: Australian Taxation Office, Henry Tax Review (2010), Grattan Institute publications, Parliamentary Budget Office costings, Australian Labor Party 2019 election platform.
What proposed reform changes
Two reform directions have been raised in the recent pre-budget discussion: a reduction in the CGT discount rate itself, and proposed limits on negative gearing for investors holding multiple properties. Of the two, the CGT discount change matters most for the structural question, and it is the one our clients have been asking about most frequently in the past few weeks.
Proposals circulating in policy circles include reducing the discount from 50% to 33%, or further to 25%. Some academic and advocacy voices have called for abolition entirely. None of these are government policy. All, however, are live in the current conversation, and several have been previously modelled by the Parliamentary Budget Office.
The math itself is straightforward. A top-marginal taxpayer holding investment property in their personal name, or distributing trust gains to themselves, pays CGT at their marginal rate on the discounted portion of the gain. Reduce the discount, and the effective rate rises. A company, by contrast, pays its flat 30% rate regardless. That rate does not move when the personal discount changes.
| CGT discount | Personal or trust | Company (retained) |
|---|---|---|
| 50% (current) | 22.5% | 30.0% |
| 33% (break-even) | 30.2% | 30.0% |
| 25% | 33.8% | 30.0% |
| 0% (abolition) | 45.0% | 30.0% |
Effective rate for personal name or trust distribution to top-marginal beneficiary = (1 – CGT discount) × 45%. Company rate is the 30% standard corporate rate for passive investment companies.
The break-even, visualised
Drag the slider to change the CGT discount and watch what happens to the effective CGT rate for each structure. The break-even sits at 33%.
Methodology note: the analysis compares entity-level tax. The company rate of 30% applies to retained gains, because passive rental income fails the base-rate-entity test. The top marginal income tax rate of 45% applies to the non-discounted portion of capital gains distributed from a trust to a top-marginal beneficiary. The 2% Medicare levy is excluded on both sides for comparability, as it applies to individuals regardless of the structure the gain passes through. Including Medicare on the trust side only would shift the break-even threshold to approximately 36%.
Why this changes only future purchases, not your existing properties
Every serious discussion of CGT reform has included grandfathering. Existing investors holding existing properties keep their current settings. The 1999 transition did this. The 1985 introduction of CGT itself did this. Every reform proposal since has followed the same pattern, for obvious reasons. Retrospective CGT changes create political chaos and legal uncertainty that no government has been willing to wear.
For our clients, this matters because the conversation is entirely about future property purchases, not current holdings. An investor who already owns property in a trust keeps that current structure and its current tax treatment. An investor who owns in personal name keeps that. Nothing about reform, if it proceeds, would change the position of properties already held.
Importantly, transferring an existing property between structures triggers a CGT event under current law. In practice, that means a forced sale at market value to a related entity, with full CGT payable today. For most existing holdings, this is a poor outcome regardless of any reform. We've had a number of clients raise the question with us in recent weeks. The conversation almost always lands in the same place: leave existing properties where they are, and apply the structural thinking to whatever comes next.
The question worth thinking about, then, is specifically: how should the next investment property be held? Not "what should I do with the ones I already own?" Two very different conversations, and only one of them is on the table for most investors.
Where the conversation actually shifts: from trust to company
For most single-property investors, personal name will remain the practical default. The structural decision worth thinking about lives with the cohort already using sophisticated structures. Investors building property portfolios, on top marginal rates, who have been using trusts for 25 years. According to ATO data from the 2022-23 income year, around 219,000 Australian taxpayers hold three or more investment properties, and this cohort sits disproportionately at the higher end of the income distribution. They are the investors most likely to face the structural decision on any new acquisition.
For these investors, the question has not been "personal name or trust?" for a very long time. That question was resolved years ago in favour of the trust. The new question on any acquisition under reform becomes: "add this property to my existing trust, or hold it in a company?" This is the conversation our clients have started raising with us since March.
Two scenarios drive the decision. First, where the investor distributes trust income to lower-bracket beneficiaries (a spouse on a lower income, adult children, retired parents), the trust retains its CGT advantage. Streaming a capital gain to a 30% bracket beneficiary delivers a 15% effective CGT rate at current discount levels, rising to 22.5% even at a 25% discount. The company simply cannot match that. Trust still produces the lower CGT outcome.
Second, where the investor has no meaningful streaming options and the gain will flow to a top-marginal beneficiary (the investor themselves), the trust and personal-name structures perform identically on the CGT math. In this scenario, and only this scenario, the company produces a lower CGT outcome once the discount drops below approximately 33%. Below that level, the company is the cheaper structure on any new acquisition.
While being a narrower cohort than "Australian property investors" as a whole, it is the exact cohort whose structural defaults have governed sophisticated residential investment commentary for 25 years. A shift within this group is a shift in the conventional structural pattern itself.
How negative gearing reform compounds the case
A separate reform direction, limiting the deductibility of investment property losses against salary income for investors holding multiple properties, compounds the structural argument in specific cases. Like the CGT discount changes, this is currently speculation rather than policy. But it has been raised consistently in the pre-budget discussion, and our clients are factoring it into their thinking.
Under most ring-fencing proposals in current discussion, losses on investment properties beyond a certain threshold (typically two, in current proposals) could only be offset against other investment income, rather than against salary. Salary-stream negative gearing has been one of the main practical advantages of holding property in personal name for 25 years. If that advantage is limited for properties beyond the threshold, one of the main practical reasons to hold incremental properties personally diminishes.
For an investor already holding two properties in personal name or trust, adding a third property in a company structure would match the new ring-fencing reality. Losses stay inside the company, offsetting future company income. The investor does not lose the salary offset they never had under the new rules. And the company's 30% CGT rate, if the discount has also been cut, may produce the lower-tax outcome on eventual sale.
The reforms compound. Any investor considering a third or subsequent investment property purchase under a combined-reform regime faces a genuinely new structural question with the company as a credible answer, for the first time since 1999. This is the part of the conversation that has been hardest for our portfolio clients to think through, because it crosses two reform directions at once.
Personal name, trust and company compared
CGT is one input into the structural decision. In practice, investors and their accountants weigh ten or more factors. This table summarises how the three structures compare across the dimensions that matter most for residential investment.
| Dimension | Option 1 Personal name | Option 2 Discretionary trust | Option 3 Company |
|---|---|---|---|
| CGT discount available | Yes, 50% | Yes, 50% passed to beneficiary | No |
| Effective CGT rate (top marginal) | 22.5% (at 50% discount) | 22.5% (at 50% discount, top-marginal beneficiary) | 30% (on retained gains) |
| Income distribution flexibility | None, taxed to the owner | High, distribute to any beneficiary | Moderate, dividends to shareholders subject to franking rules |
| Asset protection | Low, held in personal name | High, separated from personal estate | High, separate legal entity |
| Negative gearing offset against salary | Yes (subject to any future ring-fencing) | No, losses trapped inside the trust | No, losses trapped inside the company |
| Land tax treatment | Standard threshold available | Surcharge or no threshold in NSW, VIC, QLD | Standard threshold (varies by state) |
| Setup cost | Nil | $1,500 to $3,000 (with corporate trustee) | $500 to $1,500 (Pty Ltd registration) |
| Annual compliance cost | Minimal | $1,500 to $3,000 (separate trust return) | $1,500 to $3,000 (separate company return) |
| Borrowing complexity | Simplest, full lender market | Moderate, most lenders comfortable with discretionary trusts | Moderate, narrower lender pool, often higher rates |
| Main residence exemption | Available if used as main residence | Not available | Not available |
| Succession and estate planning | Passes via will, subject to probate | Continues across generations via trust deed | Passes via shareholding, subject to estate |
| Strongest fit | Single property, owner-occupier history, salary-stream offset desired | Multi-property portfolio, family with lower-bracket beneficiaries, asset protection priority | Multi-property portfolio, top-marginal owner, retain-and-compound strategy, no streaming options |
For 25 years, the structural answer for sophisticated residential property investment has been the trust. If CGT reform proceeds at the levels currently in discussion, that settled answer becomes a live question for the first time in a generation. We expect investors and their accountants to be working through it carefully, ahead of any new acquisitions committed in the second half of 2026.
The 12 May federal budget will clarify the government's direction on both CGT discount reform and any changes to negative gearing treatment. Until then, the analysis above represents our best read of the structural question as it stands in the pre-budget window. We'll update this page once the budget is handed down to reflect what the policy actually says, rather than what current commentary suggests it might.
Common objections from financial professionals
This is pre-budget speculation. No CGT reform has been legislated. These are the reasonable pushbacks we hear from accountants and advisers when we share this analysis, and why we think the structural question still stands.
01 Isn't 33% just matching the superannuation discount rate?
It's a reasonable read, and the most common intuitive explanation we hear. Complying superannuation funds currently receive a one-third (33.33%) CGT discount, so aligning individuals and trusts to the same number produces neat symmetry across investment vehicles. As an explanation for the policy choice, it holds together on its own terms.
However, the cohort the reform is reportedly targeting is not superannuation. It is top-marginal investors with multi-property residential portfolios, per the reportedly-planned cap on negative gearing at two properties. For that specific cohort, 33% also happens to sit at the calculated trust-vs-company break-even for gains retained and reinvested. Two different explanations for the same number, pointing to two different framings of what the reform is doing.
Consequently, we are not claiming the superannuation alignment reading is wrong. We are suggesting that for the cohort the reform is most aimed at, the structural break-even reading may map more directly to the policy's stated intent. Whether Treasury is calibrating to the break-even, the super rate, both, or simply landing on a politically workable number is a question the current public conversation has not really interrogated.
02 Won't most investors just stay with personal ownership and negative gear?
Under current rules, this objection has real force. A top-marginal investor holding a property personally can offset rental losses against salary income at 47%, a cashflow benefit that neither trusts nor companies can pass through to individual owners. Losses inside a structure stay trapped in the structure.
However, two things change the picture for the cohort this analysis is aimed at. Firstly, the reform package Treasury is reportedly modelling also includes a proposed cap on negative gearing, limiting it to two investment properties per person. The cohort this analysis addresses, around 219,000 Australians holding three or more properties per ATO 2022-23 data, would lose negative gearing access on the third and subsequent acquisitions under that cap. Secondly, many top-marginal investors have already exhausted personal borrowing capacity across their first one or two properties, and already use a structure for properties thereafter.
Consequently, for investors building portfolios beyond the proposed negative gearing cap, the real structural comparison is not "personal ownership with negative gearing" against a structure. It is trust against company, with neither able to negative gear. That is the comparison where the CGT arithmetic starts to bite.
03 Won't the company advantage disappear once the investor wants the money personally?
Yes, it narrows significantly. This is the strongest technical objection, and we name it upfront. Australian companies receive no CGT discount, not 50%, not 33%, none. Companies pay 25% or 30% tax on the full gain. The arithmetic in this analysis compares gains retained and reinvested inside a company to gains retained inside a trust at the investor's top marginal rate.
Notably, the moment the investor wants personal access to the gain, the company distributes a franked dividend. Franking credits offset the corporate tax already paid, but the top-marginal shareholder still tops up to 47%. By the time the gain reaches the individual's personal bank account, the effective tax paid sits close to the marginal rate, and the company advantage largely washes out.
As a result, the structural case sits most strongly with investors genuinely building intergenerational property wealth, where gains compound inside the structure across decades and eventually stream to next-generation beneficiaries at their lower marginal rates. For investors who want personal access within, say, fifteen years, the compliance and financing drag of running a company will often outweigh the narrower benefit.
04 Won't compliance, land tax, and financing drag eat the CGT saving?
For smaller portfolios, yes, they very well could. The arithmetic shift in this analysis identifies when the CGT case for a company structure emerges. It does not price in the practical costs of actually running one.
Furthermore, those costs add up. A separate annual company tax return typically runs $1,500 to $3,000 or more in additional accounting each year. ASIC annual review fees apply. Division 7A loan rules create deemed-dividend traps on any informal lending between the company and shareholders. State land tax treatment is often worse for companies, and in NSW the full 1.6% rate applies without the tax-free threshold available to individuals. Lender access narrows materially: many residential lenders will not lend to corporate borrowers at all, and those that do typically offer lower LVRs and less competitive rates. The six-year main residence exemption is lost if the property is ever converted to the investor's own home. And the structure becomes operationally inflexible if life circumstances change.
Consequently, for portfolios under a certain size threshold, the annual drag can easily exceed the CGT saving. The arithmetic makes the structural question live. It does not say every investor should act on it. That is a conversation for a qualified accountant working through the investor's specific numbers.
05 Can't trusts still win by streaming gains to lower-income beneficiaries?
This is the subtlest objection, and the one sophisticated advisers raise first. It has genuine force.
In reality, the dominant reason discretionary trusts have led Australian property investment for 25 years is not purely the 50% CGT discount. It is distribution flexibility. A trust can stream gains to a non-working spouse, adult children on lower marginal rates, or other beneficiaries. Even with a reduced CGT discount, streaming a gain to a spouse earning $50,000 produces a dramatically lower effective tax rate than the top earner would face on the same gain.
Our analysis above compares a company (retained at corporate rate) to a trust (retained at the investor's top marginal rate). It assumes the trust gain is not distributed. For many investors, that assumption does not hold. Therefore, for investors with meaningful distribution flexibility, young family, lower-earning spouse, adult children moving through university, the trust retains its edge even under reform.
The structural case tilts hardest toward companies for investors without that flexibility: single, no spouse, no adult children, or households where the non-earning partner already earns substantial separate income. That is a real and growing cohort, but it is not every investor.
The renaissance of the company for residential property
Two points in closing. Firstly, this is pre-budget speculation. No CGT reform has been legislated. The 12 May federal budget could leave the discount unchanged, could reduce it to 33% as Treasury is reportedly modelling, or could reduce it further. Some submissions to the current Senate inquiry argue for a 25% discount. Others argue for outright abolition. Importantly, every reduction below 33% widens the company structure's arithmetic advantage for investors holding retained gains.
Secondly, what we are observing at Smart Business Plans through the first quarter of 2026 is telling. Enquiry volumes for commercial property finance have risen meaningfully, with investors asking about office, industrial, and retail assets that historically sat outside their residential portfolios. Some of that movement reflects yield-chasing as residential capital growth moderates. Some of it reflects pre-emptive repositioning ahead of a budget that may change the residential arithmetic materially. Either way, the conversation has started to shift. The structural question is no longer theoretical, it is being asked at the kitchen table.
Whether any specific investor should act on any of this depends on portfolio size, retention horizon, distribution flexibility, and personal circumstances. However, the question is live in a way it has not been since 1999. For top-marginal investors building intergenerational property wealth on new acquisitions, the company may once again be the structural answer.
About the author
Nadine is the founder of Smart Business Plans, a Gold Coast-based commercial finance brokerage established in 2009. She has helped over 3,300 Australian property investors and business owners arrange $550+ million in commercial and property finance.
Her work spans commercial property finance, business acquisition funding, self-managed super fund property lending, and mixed use property classes. Nadine is the author of The Premise Effect, a book for Australian business owners considering the decision to buy versus rent their commercial premises.
- Licensing Credit Representative (CR 553930) under Australian Credit Licence 517192
- Professional membership Mortgage and Finance Association of Australia (MFAA)
- Aggregator LMG (Loan Market Group)
- Published work The Premise Effect, available on Amazon Kindle and paperback
Sources and references
All numerical claims, tax rates, and policy references in this analysis are drawn from the following primary sources.
Tax rates and CGT treatment
- Individual income tax rates for Australian residents (top marginal rate of 45% above $190,000). Australian Taxation Office: Tax rates — Australian residents
- 50% CGT discount for individuals and trusts; companies do not receive the CGT discount. Australian Taxation Office: CGT discount
- Company tax rates of 25% (base rate entity) and 30% (full rate). Passive investment income (such as residential rental) does not qualify for the 25% rate, so the 30% rate applies. Australian Taxation Office: Company tax rates
- 2% Medicare levy applies to taxable income above the threshold (Medicare Levy Surcharge is separate and avoidable with private hospital cover). Australian Taxation Office: Medicare levy
Investor cohort data
- Approximately 219,000 Australians hold three or more investment properties; total of approximately 2.26 million individual property investors (2022-23 financial year). Australian Taxation Office: Taxation Statistics 2022-23
Reform package and policy modelling
- Treasury reportedly modelling reduction of CGT discount from 50% to 33% ahead of the 12 May 2026 federal budget; preferred proposal would not apply retrospectively or extend beyond housing. Accounting Times (26 February 2026), citing The Australian Financial Review (25 February 2026)
- Senate Select Committee on the Operation of the Capital Gains Tax Discount, established 4 November 2025, chaired by Senator Nick McKim. Final report tabled 17 March 2026, with submissions ranging from a 33% discount to outright abolition. Parliament of Australia: Senate Select Committee on the Operation of the Capital Gains Tax Discount
- Senate inquiry final report findings: CGT discount has the potential to distort investment, has skewed housing ownership towards investors, and benefits are unequally distributed. Accounting Times: Senate committee releases findings from CGT discount review (17 March 2026)
Historical context
- The 50% CGT discount for individuals and trusts was introduced by the Howard government from 21 September 1999, following recommendations of the Review of Business Taxation (the Ralph Review). It replaced the previous indexation method. Wikipedia: Capital gains tax in Australia (citing the 1999 Howard government reform)
This analysis is general information and pre-budget speculation. It is not personal tax, legal or financial advice. No CGT reform has been legislated at the time of publication. Investors should consult a qualified accountant or financial adviser before making structural decisions about their investment portfolio.