Buying property is one of the most common ways Australians build wealth.

But the ownership structure you choose has long-term tax and legal consequences. Many investors are advised to buy under a family trust to protect assets, split income, or manage estate planning. The problem is that in New South Wales, this can trigger major land tax liabilities that most investors do not anticipate.

This blog explores the land tax trap, capital gains tax risks, the pros and cons of different structures, and strategies to avoid paying unnecessary tax. Trinity Accounting Practice has advised property investors since 2003, and we know how costly the wrong decision can be.

The Land Tax Trap in New South Wales

No Threshold for Trusts

In NSW, land tax applies once your land value exceeds the threshold. For the 2025 land tax year, the threshold is $1.075 million. Individuals and companies receive this threshold. Trusts classified as “special trusts” do not.

This means if you buy through a family trust, discretionary trust, or most unit trusts, you pay land tax from the very first dollar of land value. The rate is 1.6% plus premium surcharges at higher levels.

Example

  • Land value of $1,000,000 in a trust = annual land tax bill of $16,000.
  • Same land value in a personal name or company = no land tax payable.

Over five years, that is $80,000 of unnecessary costs with no benefit for the investor.

Special Trust Classification

Revenue NSW classifies most discretionary trusts as special trusts, making them ineligible for the threshold. A fixed trust may qualify if strict requirements are met, such as all unit holders having present entitlement to income and capital. These must be proven through deed wording and trustee obligations.

Companies and Land Tax

Company Structures

Companies are entitled to the land tax threshold, the same as individuals. However, this applies only to the first company. Using multiple companies does not give multiple thresholds. Revenue NSW aggregates related entities to prevent avoidance.

Pros of Company Ownership

  • Access to the land tax threshold
  • Clear structure for ownership and liability
  • Consistent company tax rate on profits

Cons of Company Ownership

  • No 50% CGT discount for companies
  • Less flexibility in income distribution compared to trusts

Personal Ownership of Property

Advantages

  • Land tax threshold applies
  • Eligibility for the 50% CGT discount if property is held for more than 12 months
  • Access to the six-year absence rule for former main residences

Disadvantages

  • Limited asset protection
  • Income taxed at personal marginal rates, which may be high

Personal ownership works well for smaller portfolios or where the investor’s marginal rate is not excessive.

SMSFs and Property Ownership

Benefits

  • 15% tax rate on income
  • 10% CGT on assets held more than 12 months
  • Protection from personal bankruptcy

Limitations

  • Cannot exceed contribution caps
  • Strict borrowing and related-party rules
  • Properties must meet the sole-purpose test for retirement

While attractive for retirement planning, SMSF property must be structured carefully to avoid penalties. Our tax and accounting team can advise on SMSF compliance and property structuring.

The Capital Gains Tax Timing Disaster

Selling in the Wrong Year

One of the biggest mistakes property investors make is selling during a high-income year. For example:

  • You receive a work bonus or commission.
  • You sell an investment property in the same financial year.
  • Your capital gain pushes you into the top marginal tax bracket.

At a 45% tax rate plus Medicare levy, the tax liability can erase much of the profit.

The Six-Year Rule

If you move out of your home and rent it, you may treat it as your main residence for up to six years. Selling within this period allows a full CGT exemption. Forgetting to move back in or selling after six years forfeits the exemption.

Company Ownership CGT Issue

Companies are not entitled to the main residence exemption or the 50% CGT discount. A property sold under company ownership will always face full CGT with no discounts.

How Property Spruikers Mislead Investors

Many online property promoters push trusts as the ultimate solution for asset protection and tax planning. The pitch sounds convincing:

  • Split rental income across family members.
  • Protect assets from lawsuits or family disputes.
  • Distribute profits to low-income beneficiaries.

The problem is that none of this offsets the land tax trap. Investors end up paying tens of thousands in land tax, wiping out rental returns.

Always seek independent tax and accounting advice before choosing a trust structure. Our business advisory team provides objective, independent guidance on property structures.

Refinancing Instead of Selling

The Equity Strategy

Instead of selling and triggering CGT, refinancing allows you to release equity tax-free:

  • Property purchased in 2022 for $1.29 million.
  • Value in 2024 = $1.61 million.
  • Growth = $320,000.

By refinancing at 80% LVR, you can access approximately $250,000 without selling. The withdrawal is not taxable because it is borrowed funds. Interest on the refinanced portion is deductible if the funds are reinvested for income-producing purposes.

Benefits

  • No CGT event triggered
  • Retain ownership and long-term growth
  • Use equity to buy another investment or fund other needs

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