Why Use a Trust to Acquire Property?
Trusts are a commonly used structure for asset acquisition in Queensland, particularly for individuals focused on asset protection, succession planning, and tax optimisation. Common structures include:
- Discretionary trusts (family trusts)
- Unit trusts
- Hybrid trusts
- Testamentary trusts
They allow flexibility in income distribution, limit personal liability, and in some cases, enable intergenerational control over property assets. However, these advantages are only realised when legal and compliance risks are properly managed.
Legal Risks: Contracting and Trust Deed Oversights
1. Incorrect Contract Execution
In Queensland, the buyer named on the contract of sale must be precisely aligned with the legal entity acquiring the title. If the contract is signed in an individual’s name with the intent to nominate a trust post-contract, it may:
- Breach Section 22(1) of the Duties Act 2001 (Qld)
- Trigger double duty due to a dutiable transfer from individual to trustee
- Breach the vendor’s contractual discretion clause
🔍 Professional Insight: To avoid unintended dutiable transactions, the trustee (in its capacity) should be named on the contract from the outset, e.g. “John Smith as trustee for the Smith Family Trust”.
2. Trust Deed Deficiencies
Property acquisition powers must be expressly granted in the trust deed. A poorly drafted or outdated deed may:
- Lack sufficient authority to acquire or hold real property
- Include foreign beneficiaries unintentionally (leading to AFAD)
- Be incompatible with lending requirements or FIRB criteria
Legal due diligence should include review and certification of the trust deed, prior to exchange of contracts.
Stamp Duty Risks: The AFAD Trap
1. AFAD and Foreign Trust Structures
Under Queensland’s Additional Foreign Acquirer Duty (AFAD) regime, a trust may be treated as a foreign entity if:
- The trustee is a foreign person, or
- The trust deed allows for any potential foreign beneficiary
Even if the named beneficiaries are Australian citizens, discretionary powers over distributions can expose the trust to AFAD.
- AFAD = 7% of dutiable value
- Charged in addition to standard transfer duty
- Assessed on purchase of residential land only
✅ Best Practice: Amend the trust deed to irrevocably exclude foreign persons to qualify for AFAD exemption. This must be done before signing the contract.
Land Tax Exposure: Higher Rates and Limited Thresholds
Trusts are subject to higher land tax rates under the Land Tax Act 2010 (Qld). For the 2024–25 financial year:
- The general tax-free threshold for trusts is $350,000, compared to $600,000 for individuals
- The marginal rates are also steeper
- Foreign trustees are subject to a land tax surcharge
Unit trusts may be eligible for a concessional rate if the trust qualifies as a fixed trust and nominates a beneficiary in compliance with the ATO’s public ruling TR 2006/4.
Common Mistakes We See
At Ensure Legal®, we regularly advise on issues such as:
- Contracts executed by individuals on behalf of a trust without capacity
- Trustees failing to amend deeds before exchange, incurring unnecessary AFAD
- First-home buyers losing concessions due to use of a trust structure
- Ongoing land tax exposure due to incorrect trust registration with QRO
Our Services
We assist clients with:
- Review and amendment of trust deeds to ensure compliance and exclude foreign persons
- Entity structuring advice for asset protection and tax efficiency
- Stamp duty and AFAD planning
- Contract drafting and pre-signing compliance review
- Trust registration with OSR and RTA (for leasing scenarios)
- Liaison with accountants and financial advisors for coordinated tax outcomes
Conclusion
Purchasing property in Queensland through a trust can be an effective strategy, but it requires precise legal execution and tax planning. The risks—particularly relating to duty, land tax, and trust deed defects—are often underestimated.
📞 Contact Ensure Legal® before you sign any contract under a trust. Our team offers pre-contract advice, deed reviews, and tax-aware structuring to protect your interests and ensure regulatory compliance.
Before signing a contract in a trustee capacity, speak with our Queensland conveyancing lawyers about the purchaser name, contract conditions and settlement steps.
