Handing Property To Children Or Trusts: Loans, Tax And Cashflow

Passing property to children or trusts is getting harder, not easier. The 2026–27 reforms tighten capital gains tax (CGT), negative gearing and discretionary trust rules, and most families already carry more debt into their 50s and 60s than their parents did. The real risks now sit at the junction of tax, loan contracts and cashflow – especially if you’re still running a business or relying on rental income.

In plain English: you want to help the kids, minimise tax, and keep control if life doesn’t go to plan. That means understanding how equity, guarantees and new tax settings work together before you gift, sell or move properties into a trust.

1. What’s actually changed – and why it matters for passing property

1.1 The new tax backdrop in one page

Under the proposed Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and the 2026–27 Federal Budget:

1. The current 50% CGT discount for individuals and most trusts is set to be replaced with CPI indexation and a minimum 30% tax on many capital gains from around 1 July 2027 (exact detail subject to final legislation).
2. Negative gearing for residential property is being quarantined for many new purchases, meaning less ability to offset rental losses against wages.
3. Discretionary trusts face minimum tax floors and tighter reporting, with distributions scrutinised more closely.

For families with property-heavy wealth, this means:

• Less benefit in holding multiple properties with large, long-term unrealised gains purely for the discount.
• Less tax benefit from heavily geared residential investments bought after the reforms.
• More care needed when using trusts to hold or pass property.

If you’re thinking about when or how to pass properties, timing with these rules really matters – as covered in more detail in our guide on timing sales around retirement under updated rules.

1.2 Why loan and cashflow structure now matters as much as tax

Tax law doesn’t care whether your property is fully paid off. Your bank does.

When you:

• gift property
• sell it cheaply to kids
• move it into a trust, or
• pass it via your estate

…you are, in effect, asking your current lender to release security and possibly rewrite your loan. Under APRA guidance, lenders must still apply a 3% serviceability buffer when assessing new or refinanced loans. For pre-retirees or retirees with lower income, that can make a simple transfer unexpectedly hard.

Two big practical consequences:

1. You may need to refinance or restructure loans the same week you restructure ownership.
2. If you’re self‑employed or have business debts, existing guarantees and cross‑securities can drag your home or investment property into business risk, even after you’ve ‘helped’ the kids. (See our detailed explainer on keeping the family home safe when you run a business.)

2. Main ways to pass property – and what breaks in practice

2.1 Direct gift of property to children

What it is: You transfer title to your child for no (or below-market) consideration.

Key tax and legal points (high level, get specific advice):

• CGT event usually occurs at market value, even if you gift it.
• Stamp duty is usually payable by the recipient on market value (state rules vary).
• You lose legal control immediately.

Loan and cashflow traps:

• The lender won’t just let security walk out the door.
• If your home or investment property secures other loans (investment or business), you may need:
  • new security
  • partial debt repayment, or
  • a new lender.

Numeric example – gifted investment unit
You own an investment unit worth $900,000 with a $350,000 interest‑only loan at 6.5%.

• Annual interest: ~$22,750.
• You want to gift it to your daughter, who has no loan.

Your lender is currently relying on that unit as security for the $350,000. To release it, they will typically require:

• that loan to be fully repaid, or
• substitute security of similar value (for example, your home).

If you don’t have spare cash and your home is already at 70% LVR, you may not be able to gift without:

• selling another asset, or
• your daughter taking out a new loan (with you possibly as guarantor).

2.2 Concessional sale to children

What it is: You sell the property to children at a discount to market value.

From a tax and duty perspective, authorities mostly treat this as if you sold at market value. The discount is a gift.

From a lending perspective, the child is typically borrowing to buy from you. The bank will:

• look at their income and debts under current rules
• treat any discount as gifted equity (sometimes with stricter LVR caps)
• want your existing loan cleared or re‑secured.

This can be a powerful way to move properties into the kids’ names while they still qualify for full‑doc lending.

2.3 Using (or creating) a family trust

What it is: Property is held by a discretionary or unit trust for the benefit of family members, not personally.

Under the new settings, trusts still have advantages (asset protection, income streaming in some cases), but:

• certain trust capital gains may face minimum tax rates similar to individuals
• trustee reporting obligations are expanding
• banks can be fussier about trust borrowers, especially where older parents are involved.

We cover this more in Structuring family trusts and companies to help children buy property.

Common lending friction points:

• Lenders often insist on personal guarantees from adult beneficiaries.
• For older parents, that can quietly re‑expose the home as security even after ‘moving’ the property into the trust.

2.4 Letting property pass via your estate

Letting property flow through your will can be simpler for tax in some cases, but:

• heirs inherit your loan position, not just the asset.
• The bank can still call in or refinance loans.

We go deeper on shielding heirs from large mortgages in our guide on mortgages, insurance and trusts.