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Should You Buy Your Next Property in a Trust or SMSF?
October 12, 2025 |
Lately, we’ve noticed that many property investors are becoming increasingly aware of how tax structures can impact their overall wealth. They’re actively exploring ways to minimise tax, acquire more properties, and protect their existing assets. Among the most discussed strategies are purchasing property through a trust or via a Self-Managed Super Fund (SMSF).
Both structures can deliver excellent long-term benefits, but they also come with different rules, risks, and compliance requirements. In this article, we’ll explore how each structure works, their pros and cons, and the key factors to consider before deciding whether your next property investment should be through a trust or an SMSF.
Understanding the Basics
Before diving into tax strategies and long-term planning, it’s important to understand the key differences between a trust and an SMSF in the context of property ownership.
What Is a Trust?
A trust is a legal arrangement where a trustee holds assets on behalf of beneficiaries. In property investing, a discretionary (family) trust or a unit trust is commonly used. The trust doesn’t pay tax itself in most cases; instead, the income is distributed to beneficiaries who are then taxed at their individual rates. This makes it a flexible structure for income distribution and asset protection.
What Is an SMSF?
A Self-Managed Super Fund (SMSF) is a private superannuation fund that allows you to take control of your retirement investments. You can use your super money to purchase property — often with an LRBA (Limited Recourse Borrowing Arrangement) — but there are strict rules around borrowing, related-party transactions, and how the property is used. All investments must comply with the Sole Purpose Test, meaning they’re intended purely for retirement benefits.
Buying Property Through a Trust
For many investors and business owners, buying property through a trust has become a strategic way to build wealth, protect assets, and manage tax more efficiently. A trust allows you to hold property outside your personal name, offering greater control, privacy, and long-term flexibility. It’s particularly popular among property investors who want to grow their portfolio while minimising exposure to personal or business risks.
A trust is a legal structure where a trustee holds property on behalf of beneficiaries. The income and capital gains earned from the property can be distributed in a tax-efficient way, often to family members in lower tax brackets. This makes it a powerful structure for investors looking to manage income distribution and maximise returns.
Another advantage of using a trust is asset protection—properties owned by the trust are generally protected from personal creditors or lawsuits. Trusts can also enhance borrowing capacity when structured properly. In many cases, if the trust is positively or neutrally geared, certain lenders may not count that debt in the individual’s borrowing assessment, allowing investors more flexibility to expand their portfolio.
Trusts also support land tax planning in some states, where using multiple trusts can help investors access separate thresholds and reduce overall land tax exposure. Beyond tax and borrowing, trusts are also effective for estate planning, enabling wealth to be passed down through generations while maintaining control and flexibility.
However, trusts do come with some downsides. The setup and ongoing maintenance costs are higher than personal ownership, as you’ll need a trust deed, a trustee company, and regular accounting and compliance work. And unlike individual ownership, rental losses can’t be distributed to beneficiaries from Discretionary Trust — any losses are trapped within the trust and carried forward until future profits arise.
Despite these considerations, a trust remains one of the most flexible and protective structures available to Australian property investors, especially for those looking to build multi-property portfolios, protect family wealth, and plan for the long term.
Buying Property Through an SMSF
For many Australians, buying property through a Self-Managed Super Fund (SMSF) has become a smart way to grow long-term wealth using superannuation savings—without affecting their personal or trust borrowing capacity outside the fund. This is one of the biggest advantages of using an SMSF for property investment: it allows investors to continue building portfolios personally or in trusts while their super independently holds property under its own lending structure.
An SMSF can borrow money under a Limited Recourse Borrowing Arrangement (LRBA), meaning the loan is secured only by the property itself. If the SMSF defaults, the lender’s access is limited to that specific property, leaving other fund assets protected. This structure gives investors the ability to leverage their retirement savings for property growth—something not possible through retail or industry super funds.
Beyond borrowing flexibility, SMSFs offer exceptional tax advantages. Rental income within the fund is generally taxed at 15%, and capital gains on assets held for more than 12 months are taxed at an effective rate of 10%. Once the fund enters pension phase, both income and capital gains can even become completely tax-free.
An SMSF can also serve as a long-term wealth compounding vehicle. All rent received and capital growth remain inside the fund, helping members steadily build retirement savings in a low-tax environment. For business owners, an SMSF provides an additional benefit—it can purchase commercial property and lease it back to the business at market rates. This arrangement turns rent payments into super contributions while giving the owner control over their premises.
However, it’s important to understand that SMSFs come with strict rules and higher compliance obligations. Every investment must meet the Sole Purpose Test, meaning it must genuinely benefit members’ retirement. You cannot live in, rent, or use a residential property owned by your SMSF, and any borrowing must comply with LRBA (Limited Recourse Borrowing Arrangement) rules. These arrangements often require a separate bare trust and trustee company, adding complexity and cost to the setup.
It’s also worth noting that SMSF loan interest rates are typically 1.5% to 3% higher than standard loans available to individuals or trusts, reflecting the additional risk and administrative requirements lenders face with SMSF structures.
Finally, while an SMSF offers significant tax and wealth-building advantages, it’s not suitable for everyone. Managing an SMSF property requires a strong understanding of investment strategy, compliance, and long-term planning. It’s best suited to investors who are highly engaged with their finances, comfortable managing their own retirement fund, and committed to ongoing compliance and reporting obligations. For those who are well-informed and strategic, an SMSF can be an incredibly powerful vehicle for long-term property investment and retirement wealth creation.
Trust vs SMSF: Which One Is Right for Your Next Property Investment?
| Criteria | Trust | SMSF |
| Purpose | Offers flexibility for wealth creation, tax planning, and asset protection across family members or entities. | Focused on building long-term retirement wealth within a regulated superannuation environment. |
| Tax Environment | Income and capital gains distributed to beneficiaries and taxed at their marginal rates. | Income taxed at 15% (accumulation phase); can become tax-free in pension phase. |
| Borrowing | Standard property loans available; easier lending process and broader lender options. | Borrowing only allowed under LRBA rules; requires a bare trust and typically higher loan setup costs and interest rates. |
| Impact on Personal Borrowing | Loans appear on the borrower’s credit file and may affect future borrowing capacity. | SMSF loans are isolated from personal or trust borrowing capacity outside the fund. |
| Ownership and Use | Can be used personally or for family benefit depending on the trust type and purpose. | Must meet the Sole Purpose Test—cannot be lived in, rented to, or used by members or related parties (except business use for commercial property). |
| Setup and Ongoing Costs | Higher setup costs due to deed establishment, state government stamping, and creation of a trustee company. Lower ongoing costs as annual audits are not required. | High setup and ongoing costs including establishment of trustee company, bare trust for LRBA, annual audits, financial statements, and ATO reporting. |
| Control and Flexibility | High level of control over income distribution, borrowing, and structuring decisions. | High control within super rules, but subject to strict compliance and investment limitations. |
| Estate Planning Benefits | Excellent flexibility—wealth can pass through generations while maintaining control. | More limited; assets remain within the fund structure and are distributed under superannuation law. |
| Ideal For | Experienced investors seeking flexibility, tax efficiency, and asset protection across multiple properties. | Financially disciplined investors who understand compliance and want to grow retirement with a balanced Investment portfolio including a property. |
What’s Next
Whether you choose to invest through a trust or an SMSF, the right structure can make a significant difference to your tax outcomes, borrowing options, and long-term wealth. Both strategies have the potential to protect assets and optimise returns — but only when they’re set up and managed correctly.
At Investax, we help property investors and business owners understand which structure best aligns with their goals. Our specialist team can guide you through the legal, tax, and lending considerations to ensure your investment strategy is compliant, efficient, and tailored to your future plans.
An accounting fee paid to a good accountant should be seen as an investment — not a cost. Especially when that fee is 100% tax-deductible, it makes sense to work with someone who understands the complexity of property tax and investment structures.
If you’re considering buying your next property through a trust or an SMSF, contact Investax today to book a confidential consultation and make an informed decision about your next investment move.
We offer a 15-minute free consultation to discuss your tax, property investment and business needs. Book your complimentary consultation now.
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