The choice between holding property in a discretionary trust, a unit trust, or a company is one of the most consequential decisions in commercial property investment. It affects CGT outcomes at sale, income tax during the holding period, land tax aggregation in some states, asset protection from creditors, lending appetite, and the practical mechanics of passing the asset to the next generation.
This guide compares the three structures side by side, identifies where each one fits best, and covers the buyer-side decisions that should be made before contract.
Companies are simple but tax-disadvantaged for property. Trusts are flexible but state-dependent on land tax. Get the structure wrong and the cost compounds over the entire hold period; get it right once and forget it.
The Three Structures at a Glance
Discretionary trust (family trust)
A trustee holds property on behalf of a class of potential beneficiaries. Income and capital gains can be distributed to beneficiaries at the trustee's discretion each year. Asset protection is strong; income flexibility is high; land tax treatment varies by state.
Unit trust
A trustee holds property on behalf of unit holders, each with a defined beneficial interest. Income flows to unit holders in proportion to units held. Some land tax pass-through available in specific states. Common in property syndicates.
Company
Legal entity that holds property in its own name. Income retained or distributed as dividends to shareholders. Corporate tax rate (25% or 30%) applies. No CGT discount available. Simple but tax-disadvantaged for property held directly.
1 CGT Treatment
Discretionary trust
Capital gains are taxed in the trust but distributed to beneficiaries. The 50% CGT discount flows through to individual beneficiaries (where the asset has been held 12+ months and the beneficiary is an individual or fixed unit trust). This is the most tax-efficient structure for property held by Australian resident individuals.
Unit trust
Capital gains flow through to unit holders. The 50% discount applies where the unit holder is an individual or eligible trust. For company unit holders, no discount.
Company
No 50% CGT discount. Gains taxed at the corporate rate (25% for small business companies, 30% for standard). Distribution to shareholders as franked dividends adds another tax layer.
2 Income Tax During the Holding Period
Discretionary trust
Net income distributed annually to beneficiaries. The trustee can choose which beneficiaries receive what proportion (subject to the trust deed). This allows income to be directed to lower-marginal-rate family members or to corporate beneficiaries for retention.
Unit trust
Income flows in proportion to units. Less flexibility than a discretionary trust but provides defined economic interest, which suits commercial property syndicates.
Company
Income taxed at the corporate rate. Retained for reinvestment or distributed as dividends. Franking credits attach to dividends, reducing the shareholder's tax burden on the distribution.
3 Land Tax
Discretionary trust
Treated differently across states. In NSW and Victoria, discretionary trusts attract higher land tax rates and lower thresholds unless the trust deed specifically excludes foreign beneficiaries. The trust surcharge can substantially affect the holding-cost picture.
Unit trust
Fixed unit trusts in some states can pass the tax-free threshold through to unit holders, producing a more favourable land tax outcome than a discretionary trust holding the same land. The deed structure must satisfy the state revenue office's fixed-trust criteria.
Company
Assessed similarly to individual ownership in most states, generally without the trust surcharge. Land tax aggregation across multiple properties applies.
4 Asset Protection
Discretionary trust
Strong. Beneficiaries do not have a defined entitlement to trust assets; creditors of a beneficiary generally cannot reach trust assets. Subject to the specific structure and to bankruptcy/family law overrides in some cases.
Unit trust
Moderate. Unit holders have a defined economic interest; creditors of a unit holder can attach the units. The trust assets are protected from creditors of the trustee but not from creditors of the unit holders.
Company
Moderate. Shareholders have shares that can be attached by their creditors. Company assets are protected from shareholder creditors but the shares themselves are at risk.
5 Lending Appetite
Discretionary trust
Most commercial lenders accept discretionary trust borrowers. Personal guarantees from individual trustees or controlling individuals are typically required. Some niche lenders are uncomfortable with the income-distribution flexibility.
Unit trust
Widely accepted by commercial lenders. Personal guarantees typically required. Documentation is more complex than individual ownership but well-precedented.
Company
Standard corporate borrower. Personal guarantees from directors typically required. Cleanest lending structure for a single-owner-controlled entity.
6 Succession and Generational Transfer
Discretionary trust
Strong. The trust continues across generations. Control passes via the appointor (the person with power to remove and appoint trustees). Beneficiaries can be added or removed (subject to the deed). The trust is the principal vehicle for multi-generational property wealth.
Unit trust
Moderate. Units can be transferred to family members but typically triggers CGT on the unit holder. Estate planning requires unit-transfer mechanisms.
Company
Moderate. Shares can be transferred to family members but typically triggers CGT (and stamp duty on landholder duty if the company holds property above thresholds). Estate planning requires share-transfer mechanisms and careful structuring.
7 Stamp Duty on Acquisition
Stamp duty on property acquisition is generally the same across structures; the buying entity pays the same dutiable amount. Differences arise in:
- Foreign purchaser surcharge. Applies to trusts and companies with foreign-linked beneficial ownership at the same rates as individuals.
- Landholder duty. When a company or trust holding land is acquired at the equity level (e.g., shares in a property-holding company), landholder duty can apply as if the property had been acquired directly.
8 Practical Decision Framework
Use a discretionary trust when
- The investor has family members at varying marginal tax rates.
- Asset protection from personal creditors is a priority.
- Multi-generational succession is a planning consideration.
- The state's land tax trust surcharge is manageable in the specific scenario.
Use a unit trust when
The investment involves multiple investors with defined economic interests (a property syndicate), and the fixed-trust land tax pass-through is available in the relevant state.
Use a company when
Property is held in the course of a business (e.g., a property development business), or as a beneficiary of a discretionary trust to receive trust distributions for retention at corporate rates. Direct property holding in a company is rarely optimal for long-term passive investment.
Frequently Asked Questions
Can I change the structure after purchase?
Generally yes, but the change typically triggers CGT and stamp duty in most states. Restructuring is expensive; the structure decision at purchase is the practical one to get right.
Are there hybrid structures?
Yes. Common variants include unit trusts with a corporate trustee, discretionary trusts with corporate beneficiaries, and structures combining a discretionary trust for property holding with a company for active business income.
What about SMSF ownership?
SMSF ownership is a separate analysis with specific advantages (15% accumulation rate, 0% pension rate) and constraints (LRBA single-acquirable-asset rule, in-house asset rule). Covered in the SMSF Commercial Property & LRBA article.
Does the structure decision change for SMSF members buying business real property?
Often yes. An SMSF can hold business real property and lease it back to the member's business at arm's length, giving access to the 15% accumulation rate and 0% pension rate on the rental income.