Using Family Trusts and Bucket Companies Under New Property Tax Rules

Family trusts and bucket companies still have a role in property after the 2026–27 reforms, but they are no longer a magic tax trick. The new rules on negative gearing, CGT and trusts mean you now use these structures mainly for asset protection, succession and controlled income streaming – not to turn big rental losses into tax refunds. This playbook shows where they still work, where they now backfire, and what to actually do this week.

In 2026–27 and beyond, assume three things:

1. Many rental losses on established properties bought after 12 May 2026 are quarantined to rental income and property gains, whether you own them personally or in a trust.
2. Discretionary trusts are moving towards minimum effective tax rates and heavier reporting, limiting extreme income splitting.
3. Several states now hit certain trusts with land tax surcharges unless the deed is carefully drafted.

Use this guide to decide whether a family trust and/or bucket company belongs in your next property move – or whether you’re better off staying simple.

Choosing between personal ownership, a family trust and a trust plus bucket company is now more about risk and cashflow than chasing tax losses.

1. Quick definitions: family trusts, bucket companies and the new rules

1.1 What is a family trust in practice?

A family (discretionary) trust is a legal relationship where a trustee holds assets for a group of beneficiaries, usually one family. The trustee controls the assets and decides each year who receives income or capital.

For property investors, the main historic uses were:

• spreading income across family members
• protecting assets from trading/business risks
• planning who ultimately benefits from capital gains.

After the 2026–27 reforms, these advantages are still there, but the pure tax angle is weaker, especially for negatively geared residential property.

1.2 What is a bucket company?

A bucket company is a company added as a beneficiary of a discretionary trust. When the trust has more taxable income than you want hitting individuals, it can “tip” (distribute) some of that income to the company.

Key points:

• The company pays tax at corporate rates on that income.
• After-tax profits can be kept in the company or later paid as franked dividends.
• This helps cap the marginal tax rate on trust income once individuals hit higher brackets.

In the new environment, bucket companies are less about converting losses into refunds and more about smoothing high rental or business income over time.

1.3 What changed in the 2026–27 reforms for property and trusts?

Across several Budget and reform packages, three things hit property plus trusts hardest:

1. Negative gearing reforms – for many established residential properties bought after 12 May 2026, net rental losses are quarantined to current and future rental income and property gains, instead of offsetting salary or business income (including via a trust).
2. CGT reforms – the long‑standing 50% CGT discount for individuals and trusts is being replaced by CPI indexation and minimum effective tax rates on many capital gains.
3. Trust reforms – new minimum tax arrangements and tighter rules for discretionary trusts, plus continued focus on section 100A (reimbursement agreements) and PSI rules, make aggressive income splitting much riskier.

These interact with state land tax surcharges for some trusts, and existing ATO anti‑avoidance rules on trust distributions.

The net result: structure no longer overrides fundamental property economics. Your pre‑tax cashflow and asset quality matter far more than chasing trust-based tax benefits.

For a deeper lens on when trusts still work at all for property, see Trusts, Land Tax and CGT After the 2026 Reforms: When They Still Work.

2. When a family trust still makes sense for property in 2026–27

2.1 The new “three reasons only” test

Under the updated rules, a family trust usually needs to tick at least one of these to justify its extra cost and admin:

1. Asset protection – you run a business or profession with real litigation/insolvency risk, and you want to separate investment assets from trading entities and your personal name.
2. Succession and control – you want a long‑term vehicle that can pass control between generations without triggering immediate CGT or stamp duty on each family reshuffle (subject to state rules).
3. Long‑term income streaming – you expect strong rental income in later years and want flexibility to distribute to adult children, a lower‑income spouse or a bucket company.

If your only goal is “I want to negative gear harder” or “I heard trusts are good for tax”, the structure is usually not worth it after 2026.

2.2 What types of property still work in a trust?

Family trusts continue to have a role for:

• Positively or near‑neutral geared residential property, particularly where you want to stream income later.
• New build residential investments that keep full negative gearing and CGT concessions under the carve‑outs.
• Commercial property (e.g. business premises) where negative gearing reforms do not bite in the same way.
• Long‑term hold, growth‑plus‑income assets where you prioritise flexibility and control over maximising early‑year tax refunds.

The key is to model the property assuming little or no wage‑offset negative gearing benefit, then see if the trust still makes sense.

For help comparing entities, cross‑check against How to Choose Between Personal, Trust or Company for Geared Property.

2.3 When a family trust is now a red flag

A trust may be the wrong tool if:

• You’re buying an established residential property after 12 May 2026 largely for negative gearing.
• Your state charges land tax surcharges for discretionary or foreign-style trusts, and you’re near high land values.
• You expect to sit on large quarantined rental losses for years; trapping them in a trust with no other rental income or gains can delay or waste the benefit.
• You want to “distribute” income to adult children who don’t really receive it – this is precisely where section 100A risk lives.

In these cases, personal ownership or a simpler company structure may be safer and cheaper overall.

3. Bucket companies in the new world: when and how to use them

3.1 What bucket companies can still do well

After the reforms, bucket companies mainly help with capping tax on strong income years, not with boosting tax refunds on losses.

They can still:

• Receive trust distributions of positive rental or business income at corporate rates.
• Accumulate profits for future investment (e.g. funding deposits, commercial property, or diversified portfolios).
• Provide a “parking bay” for income in high‑income years, smoothing family cashflows over time.

They are most useful where the trust expects growing net income, such as a maturing property portfolio or business.

3.2 What bucket companies cannot do under the new rules

Common misconceptions:

• A bucket company does not fix negative gearing changes. Quarantined residential rental losses in a trust remain quarantined inside that trust – tipping income to a company doesn’t convert them to wage-offset deductions.
• It does not let you “wash” personal services income (PSI) into lower‑tax entities.
• It can become a tax trap if you distribute income there without a plan to eventually pay it out as franked dividends.

3.3 Simple worked example: trust and bucket combo

Assume in 2030–31 your family trust holds:

• an older, now neutral‑cashflow established investment property bought in 2027; and
• a small commercial property yielding steady rent.

The trust’s net taxable income for the year is $120,000. Your household is already on high marginal rates.

A practical strategy might be:

• Distribute $30,000 to a lower‑income spouse.
• Distribute $10,000 to an adult child at university (genuinely paid to them).
• Distribute $80,000 to the bucket company, taxed at, say, 30% = $24,000 company tax.

The after‑tax $56,000 left in the company can be retained to fund deposits or buffer cash reserves.

You’ve used the trust for flexibility and the bucket company to cap tax on the surplus – without relying on any old‑school negative gearing tricks.