Buying Investment Property in a Trust: Corporate Trustee vs Individual Trustee – Tax Advantages and Disadvantages
If you are part of any online property investment forums, you would most likely see occasional chatter on setting up a trust to buy investment property as a suggested strategy for borrowers looking to extend their borrowing capacity.
Though this strategy has an element of truth, due to varying lending policy between lenders, it is not a guarantee but merely an available pathway when coupled with expert guidance.
Before jumping into borrowing under a trust, you have an important decision to make when it comes to the trustee — the legal entity responsible for holding and managing the trust’s assets — to use an individual trustee or a corporate trustee.
Each choice has tax implications, as well as lending pros and cons you need to understand before proceeding.
1. Overview: What is a Trustee?
The trustee is the person or company that legally owns the property on behalf of the beneficiaries of the trust.
The trustee is responsible for:
• Managing the trust's assets
• Distributing income to beneficiaries
• Complying with the law, including filing tax returns and paying any tax liabilities
The trustee can either be:
• An individual (or two individuals)
• A company (a corporate trustee)
Your choice of trustee does not change the trust’s tax rate directly, but it affects the administration, control, costs, and asset protection, all of which have indirect tax consequences.
2. Tax Advantages of a Corporate Trustee
Easier to Distinguish Trust Assets from Personal Assets
A corporate trustee provides a clear separation between trust property and personal assets of individuals.
This makes it easier to argue for asset protection, and helps in defending the trust structure if audited by the ATO (Australian Tax Office).
From a tax perspective, a clear separation reduces the risk that income or gains from the trust are attributed back to an individual incorrectly, avoiding potential tax disputes.
Better Succession Planning and Continuity
If an individual trustee dies or becomes incapacitated, the trust is disrupted — potentially triggering capital gains tax (CGT) events or stamp duty reassessments.
A corporate trustee, on the other hand, never "dies" — it exists until it is deregistered.
This avoids triggering unwanted CGT events, especially important if you hold appreciating investment properties in the trust.
Stronger Asset Protection Reduces Risk of Tax Losses
Using a company as trustee protects the trust’s assets from personal creditors of an individual trustee.
If an individual trustee were sued personally (say from a non-trust related liability), the trust's property could be exposed. If assets are seized or sold off, tax losses could occur unexpectedly.
With a corporate trustee, personal lawsuits do not directly threaten the trust's assets.
3. Tax Disadvantages of a Corporate Trustee
• Higher Setup and Ongoing Costs
• Setting up a company involves ASIC registration (approx. $576 one-off fee).
• Ongoing ASIC annual review fees (approx. $310 each year)
• Extra accounting and bookkeeping requirements for the company.
While these costs are not massive, they can reduce your overall cashflow, which affects your tax deductions indirectly.
Administrative Complexity
The company must comply with ASIC regulations, including keeping records, lodging forms, and updating directors’ details.
Failure to maintain these can create compliance risks, and penalties — not necessarily tax penalties, but administrative penalties that eat into investment returns.
4. Tax Advantages of an Individual Trustee
Lower Setup and Ongoing Costs
Using individuals as trustees avoids the cost of setting up a company and paying annual ASIC fees.
This leaves more cash available for property expenses and investments — and cash outflow management is a big driver of property investment tax strategies.
Simpler Administration
Individual trustees have fewer administrative obligations than corporate trustees.
There are no company directors' meetings, ASIC filings, or company tax compliance obligations.
This simplicity may save you accounting fees and admin headaches.
5. Tax Disadvantages of an Individual Trustee
Higher Risk of CGT and Stamp Duty Trigger on Death or Exit
If an individual trustee dies, becomes bankrupt, or steps down, the trust may be deemed resettled.
This can trigger a capital gains tax event and potentially stamp duty liabilities — even though the underlying property hasn't been sold to a third party!
For investment property, where values generally rise over time, the tax consequences of a resettlement can be substantial.
Asset Protection is Weaker
If an individual trustee becomes personally bankrupt or is sued, trust assets could be attacked by creditors — even though they are "held on trust."
If assets are seized or sold, the trust may incur forced CGT events. This can create unexpected tax bills and loss of investment assets.
6. Other Practical Considerations
Besides the tax consequences, a few broader issues should be considered:
| Aspect | Corporate Trustee | Individual Trustee |
|---|---|---|
| Asset Protection | Stronger | Weaker |
| Succession/Death Risk | Minimal | High |
| Setup/Annual Costs | Higher | Lower |
| Administrative Burden | Higher | Lower |
| Tax Risk in Disputes/Audits | Lower | Higher |
7. Which Is Better?
• If you are serious about building a significant property portfolio, a corporate trustee is usually better despite the extra upfront and annual costs.
The tax risk reduction, succession planning advantages, and asset protection benefits far outweigh the costs over the long term.
• If you are buying just one property or on a tight budget, and you're comfortable with some additional risk, an individual trustee might be sufficient — at least in the early years.
Think long-term. The cost of a corporate trustee is relatively small compared to the potential tax costs and legal headaches you could face if things go wrong.
When setting up a trust, always work with a qualified accountant and lawyer to ensure the deed is drafted properly.
A poorly drafted trust deed can destroy any tax benefits you are trying to achieve, no matter who the trustee is.
Note: This article is for information purposes only and should not be considered to be tax or investment advice.