Unlocking Your Property Investment Potential

Most Australians spend years working, saving and stressing to build a property portfolio. They compare suburbs, negotiate with agents and fine tune their borrowing. But very few spend the same energy thinking about the quiet end game: how they will one day sell, gift or pass those properties on to their kids or other family members.

The way you enter a deal is only half the story. The way you exit can mean tens or even hundreds of thousands of dollars in extra tax or money kept in your pocket. The ownership structure you choose, how you claim depreciation and when you transfer or sell can all change the final outcome in quite a big way.

In this article, we will walk through four key pieces of the puzzle:

1. Selling in your own name, through a family trust or via an SMSF

2. What actually happens to your depreciation deductions when you sell

3. Transferring property to children while you are still alive

4. What happens to investment properties and your home when you pass away

This is general education to give you a clearer framework and better questions to ask. It is not personal tax advice. Before making changes to your structure or exit plans, always run your specific numbers past a qualified accountant and financial adviser who understands property.

 

Why your ownership structure shapes your property exit

Selling in your own name

When you hold an investment property in your own name, any profit on sale is generally taxed under the capital gains tax (CGT) rules. You work out the capital gain by taking the sale price, subtracting your cost base (purchase price plus certain costs and improvements), then applying any discounts or concessions you qualify for.

If you have held the property for more than 12 months, you usually get a 50% CGT discount as an individual. That means only half of the gain is added to your taxable income for that financial year. Sounds generous, and in many cases it is. The catch is that this discounted gain is still taxed at your marginal tax rate.

For high-income earners, that marginal rate can be up to 47% including Medicare levy. Here’s a simple example:

• You bought an investment property for $600,000

• After costs and improvements, your cost base is $650,000

• You sell years later for $950,000

• Your gross capital gain is $300,000

Because you held the property for more than 12 months, you get the 50% discount:

• Discounted capital gain = $300,000 × 50% = $150,000

If you are already in the top tax bracket, that extra $150,000 is taxed at 47%:

• Tax on the gain = $150,000 × 47% = $70,500

So even with the discount, more than seventy grand goes to the ATO from this one sale. Buying in your own name is simple and cheap to set up, which is why most people start there. But if your income and capital gains are likely to be high, exiting in your own name can be one of the more expensive options from a tax point of view.

 

Using a family trust to share the load

A discretionary (family) trust works differently. Instead of one person copping the gain in their own tax return, the trust earns the income and capital gains, then the trustee decides who receives what each year. Those people are called beneficiaries.

In practice, “family” here can be much wider than just your partner and kids. Depending on how the trust deed is written, beneficiaries might include:

• You and your spouse

• Adult children

• Parents

• Siblings

• Nieces and nephews

• In some deeds, even related companies or trusts

The key idea is flexibility. If the trust sells an investment property and makes a large gain, the trustee can choose to distribute that gain to family members who are on lower tax rates. For example, if your spouse works part time or your adult children are studying and have low taxable income, some of the gain might be distributed to them instead of to the highest earner.

Used properly, this can significantly reduce the total tax paid on a sale.

There are, however, clear lines the ATO watches very closely. One big issue is “washing” money through relatives. A simple version looks like this:

• You distribute 100k of trust income to a family member with low income

• They pay little or no tax on it

• They immediately gift most or all of it back to you

This kind of circular arrangement is exactly what the ATO has been warning about. It suggests the distribution was not a genuine benefit to the family member, but a tax-saving trick. That can lead to serious trouble.

Another limit is on children under 18. Distributions to minors from a family trust are usually hit with much higher tax rates after a very small threshold, which makes them unattractive in most cases. That is why most people focus on adult beneficiaries when using trust distributions as part of a tax planning strategy.

So family trusts can be powerful for planning your exit, especially where there are multiple adult family members on different incomes. They just need to be set up properly and used in a way that fits the ATO rules, not pushed past the line.

 

Selling from an SMSF: 15%, 10% or even 0% tax

Property inside a self managed super fund (SMSF) lives under a different tax system again.

In the accumulation phase (when you are still building your super):

• The fund generally pays 15% tax on capital gains where a property has been held for less than 12 months

• After 12 months, the fund gets a one-third discount on the capital gain, so the effective tax rate is 10%

Here’s how that looks in numbers:

• Your SMSF buys a property for $500,000

• Some years later, the fund sells it for $800,000

• The gross capital gain is $300,000

If the property has been held for more than 12 months:

• Discounted gain = $300,000 × (2/3) = $200,000

• Tax at 15% on $200,000 = $30,000

So on a 300k gain, the fund only pays 30k in tax. Compared with paying 47% on a discounted gain in your own name, the difference can be huge over a lifetime of investing.

Things become even more interesting once the SMSF moves fully into pension phase (subject to the transfer balance cap and other rules). For many retirees, assets supporting a retirement pension can be sold with no CGT at all inside the fund. In other words, it may be possible under current rules to:

• Buy a property in your SMSF while you are working

• Hold it for a couple of decades

• Sell it after you have retired and your fund is in pension phase

• Pay 0% CGT on the gain within the limits that apply

That is one reason SMSF property has become so popular with investors who think long term.

There is, though, growing attention on very large super balances. The government has proposed extra tax for balances above $3 million, and the way unrealised gains are treated in that space is more complex. If your super is getting close to that level, or you expect it to, you are in territory where you need tailored advice before buying or selling property in an SMSF.

For many everyday investors, though, the headline point is simple: the structure you choose can shift your effective tax rate on a property gain from nearly 50% in some personal situations, to around 10% in an SMSF, or even 0% in pension phase. That is why exit strategy and ownership structure deserve just as much thought as the property itself.

 

What really happens to depreciation when you sell

Division 43: building write-off that shrinks your cost base

Division 43 covers the “building” side of depreciation – the capital works. Think of things like the structure itself: walls, roof, concrete, bricks and some fixed improvements. For eligible buildings, you can usually claim a fixed percentage of the construction cost each year, often around 2–2.5%, over a set period.

What many investors don’t realise is that every dollar you claim under Division 43 reduces your cost base for capital gains tax. That lower cost base means a higher capital gain when you eventually sell.

Here’s a simple example:

• You buy a property and, after a depreciation schedule, the building component is set at $450,000

• Over a number of years you claim $20,000 of Division 43 building depreciation

• Your remaining building cost base is now $430,000, not $450,000

If you later sell the property for $1,000,000, the capital gain calculation effectively uses that lower cost base. All else being equal, your gain is $20,000 higher because you have already claimed that 20k in tax deductions over the years.

So Division 43 is still useful – it boosts your cash flow every year by cutting your taxable income. But it is not a free ride. In a way, you are bringing tax savings forward to today and pushing some extra tax into the future when you sell.

 

Division 40: plant and equipment and balancing adjustments

Division 40 deals with plant and equipment – the items in the property that are separate to the actual structure. This category includes things like:

• Appliances (ovens, dishwashers)

• Hot water systems

• Air conditioning units

• Carpets and certain floor coverings

• Some fixtures and fittings

These items usually have shorter effective lives and often use faster depreciation methods. That means you can claim more upfront compared with the building write-off.

The twist comes when you sell. If you bought 50k worth of plant and equipment and, over time, you fully depreciated it to $0 in your books, the tax story doesn’t end there. At the point of sale, those items may still have a value. Maybe a quantity surveyor or valuer works out that the remaining plant and equipment is worth $20,000.

That’s where the balancing adjustment kicks in. Because you have claimed the full 50k as deductions, but the assets still have a 20k value, that 20k is added back to your assessable income in the year of sale. And unlike a capital gain on the building, that balancing adjustment doesn’t get the 50% CGT discount that individuals often enjoy.

This is why some investors feel blindsided. For years they’ve enjoyed generous plant and equipment deductions and assumed it was all upside. Then, at sale, there is a tax sting in the tail because the ATO expects you to “square up” if the assets still have value.

 

Why a fresh quantity surveyor report before sale can matter

Most investors think about engaging a quantity surveyor at the start of the journey, when they buy a property. The surveyor inspects the property, identifies all the depreciable items and prepares a schedule so you can claim Division 43 and Division 40 correctly.

It can also be worth thinking about a fresh report before you sell, especially if:

• You have owned the property for a decent stretch of time

• There have been renovations or upgrades

• You have already claimed significant depreciation

Ideally, you organise this before a buyer signs the contract, while the surveyor can still access the property easily. Waiting until the property is under contract or very close to settlement can make access trickier.

A current report helps break down:

• The remaining value of the building (for cost base and CGT calculations)

• The remaining value of plant and equipment (for any balancing adjustment)

Armed with those figures, your accountant can more accurately work out your true gain, your taxable balancing adjustment and the timing of any tax payable. That can make a big difference to how you plan the sale, when you sell and how you handle the cash flow in the year the property exits your portfolio.

 

Giving property to your children while you are alive

Why a “gift” of an investment property is still a taxable event

On paper, it feels like you should be able to simply “hand over” an investment property to your kids as a gift. In practice, the tax system usually treats this as if you have sold the property to them at market value, even if no money changes hands.

For the parent, that means a capital gains tax event. The ATO looks at what the property is worth at the time of transfer, compares that to your cost base, and works out the gain just as if you had sold it to a stranger. If you have held the property for more than 12 months, you may still get the 50% CGT discount as an individual, but you cannot dodge CGT altogether just by calling it a gift.

For the child, the transfer often triggers stamp duty, just like any other purchase. The amount of duty depends on the state or territory rules and the property value. Again, the starting point is usually the market value, not a discounted family rate.

This is where the market value substitution rules can bite. If you try to sell the property to your child for well under what it is worth to save stamp duty, the ATO and state revenue office can effectively substitute market value for your lower figure. That is why shuffling values around on paper without proper valuation evidence is risky.

Compare that to gifting cash. If you transfer 100k from your savings to your child, that money has usually already been taxed at some point in your hands. There is no capital gains tax on the act of giving cash, and the child does not treat it as taxable income. The house, on the other hand, has often grown in value over time, and that untaxed gain is exactly what the tax system is designed to capture.

So while you can absolutely help your kids using property, doing it through a “gift” of an investment property while you are alive comes with real tax and duty consequences that need to be weighed up carefully.

 

How transfers of your home are treated

Your principal place of residence (PPR) is treated quite differently to an investment property.

If your home has genuinely been your PPR for the entire time you have owned it, then when you sell or transfer it, any gain is usually covered by the main residence exemption. That means no CGT for you, whether you sell it on the open market or transfer it to your child.

The story is a bit different on the state side. Even if there is no federal CGT, stamp duty can still apply when your child receives the property. Each state and territory has its own rules about when duty is payable on transfers between family members, including any concessions that might apply. In many cases, the child still pays duty based on the current value of the home.

So in simple terms:

• For you, handing over your long term PPR often does not trigger CGT

• For your child, duty may still be payable, even though no cash changes hands

That is why proper advice is helpful before you sign anything. A quick “I’ll just pop the house into the kids’ names” might sound like a generous gesture, but the tax and duty outcomes can vary a lot depending on whether the property is your home or an investment, where it is located and how the transfer is structured.

 

What happens to your properties when you pass away

Inherited investment properties and cost base rules

When an investment property passes to your children or other beneficiaries, the tax outcome depends heavily on when the property was first acquired.

For properties bought on or after 20 September 1985 (when CGT began in Australia), your beneficiary usually inherits your original cost base. There is no CGT trigger at the moment of your death in this case. Instead, the gain is pushed down the line to when your beneficiary eventually sells.

Here is a simple example:

• You bought an investment property in 2015 for $400,000

• At the time of your death, it is worth $900,000

• Under your will, it passes to your child

If your child sells the property straight away for $900,000, their cost base is still $400,000, the amount you originally paid. The capital gain is worked out between $400,000 and the sale price, not the value at the date of your death.

The upside for the beneficiary is that, in many cases, no stamp duty is payable when the property transfers from your estate to them. The trade-off is that the unrealised gain built up during your lifetime does not disappear. It is effectively handed on to the next generation as a future CGT liability when they sell.

 

Older, pre-1985 investment properties

Properties acquired before 20 September 1985 are treated differently. These are known as pre-CGT assets.

If you bought an investment property before that date, it is outside the CGT system while you own it. When it passes to your children, the tax rules draw a line in the sand. The property usually enters the CGT system at that point, and the cost base is reset to the market value at the date of your death.

Short example:

• You bought an investment property in 1983 for $80,000

• At the time of your death, it is worth $1,000,000

• Your child inherits the property

For your child, the cost base is $1,000,000. If they sell for around that amount soon after, there may be little or no capital gain. Any future gain is only measured from that new, higher starting point.

There are fewer and fewer properties in this category as time goes on, but where they do exist, this reset can be very favourable. A lifetime of growth is effectively wiped from the CGT calculation and only post-inheritance growth is taxed.

 

Inheriting the family home and the two year CGT window

Your principal place of residence (PPR) is handled differently again when it passes to a beneficiary.

If the home has genuinely been your PPR for the whole time you owned it, the main residence exemption usually applies. When the property passes to a beneficiary on your death, it can often be sold with no CGT at all, provided certain conditions are met.

One key condition is the two year window. In many situations, if your beneficiary sells the property within two years of your death, any gain is still covered by the exemption, even if they rent it out during that period. That gives your family some room to breathe and make a considered decision instead of being forced into a quick sale.

In practice, this can lead to a choice:

• Sell quickly for simplicity and certainty

• Or hold for a year or two in a rising market, rent the property out and potentially walk away with a higher sale price, still without CGT within the allowed window

Alternatively, if the beneficiary decides to move in and make the property their PPR, then future growth may also be protected under the main residence rules, subject to the usual conditions and any overlap with other homes they own.

The main point is that inheriting a home or investment property does not automatically mean an immediate tax bill, but the timing of any sale and how the property is used after you receive it can make a big difference to the long term outcome.

 

Trusts, control and planning ahead

Why some investors use trusts for succession planning

One reason property investors like family trusts is that they can separate control from beneficial interest.

With a typical family trust setup, you might have:

• A corporate trustee (a company that legally owns the properties on paper)

• An appointor (the person who has the power to hire or fire the trustee)

• A group of beneficiaries (family members who can receive income and capital)

The properties sit in the trust. The trustee manages them. The beneficiaries enjoy the outcomes. Over time, you can change who controls the structure without having to sell the properties themselves.

Here is a simple comparison.

Scenario 1: Four properties in your own name

• You personally own four investment properties

• If you want to hand them to your adult children while you are alive, you usually have to transfer the titles

• That can trigger CGT for you and stamp duty for them

• If you wait until you die, the properties pass under your will and the tax rules we covered earlier apply

 

Scenario 2: Four properties in a family trust

• The trust owns the properties, with a corporate trustee on the title

• You are currently the director of the corporate trustee and the appointor of the trust

• Your spouse and adult children are beneficiaries

If, later in life, you decide your kids are ready to take over, under current rules it is often possible to:

• Change the directors of the trustee company

• Change the appointor to one or more of your children

The properties stay exactly where they are: inside the trust, in the name of the same corporate trustee. What changes is who has the steering wheel.

Handled correctly, this can happen without triggering CGT or stamp duty on the properties themselves. It lets you hand over control earlier in life, while you are still around to guide your kids, and still keep the asset protection and income splitting features of the trust.

Of course, trust deeds, tax rules and state revenue approaches differ, so this is an area where you want an accountant and lawyer who know what they are doing. But conceptually, that ability to move control rather than title is a big part of why trusts show up often in succession planning conversations.

 

Where testamentary trusts come into the picture

A testamentary trust is a special type of trust that only comes to life after you die. It is created by the terms of your will, not set up during your lifetime like a standard family trust.

Instead of leaving assets directly to your children or grandchildren, your will can direct that some or all of your estate flows into one or more testamentary trusts. A chosen person (or people) then act as trustee to manage the assets for your beneficiaries.

Why do people bother with this extra layer? A few reasons:

• Tax treatment for children under 18

  Income from a testamentary trust that is paid to minors can often be taxed at adult marginal rates, not the much harsher penalty rates that usually apply to kids. That can make a big difference if you want your estate to support school fees or living costs for younger family members.

• Protection during messy life events

  If a beneficiary goes through a divorce, business failure or bankruptcy, assets held in a testamentary trust may be better protected than assets in their own name, depending on the situation. It is not a magic shield, but it can add another layer between your hard-earned assets and someone else’s lawyer.

• Control over timing and behaviour

  You can give the trustee guidance on when and how to release capital, and when to keep it invested. That can help in situations where a beneficiary is young, vulnerable or simply not great with money. Instead of a lump sum landing in their lap at 18, the trust can feed out support over time.

Here is a simple real-world style example.

Imagine a grandparent with a small portfolio of investment properties and shares. In their will, they:

• Direct those assets into a testamentary trust when they die

• Name their adult daughter as trustee

• Name their grandchildren as primary beneficiaries

The trust earns rental income and dividends. Each year, the daughter as trustee can distribute income to the grandchildren. Because it is from a testamentary trust, those distributions to kids under 18 can often use adult tax thresholds. In practice, that money might help pay for private school fees, uni costs, or a first car.

Meanwhile, the underlying assets stay in the trust, invested and protected. At some point down the track, when the grandchildren are older and more financially mature, the trustee might decide to transfer assets out to them directly or keep the structure in place for longer.

Used thoughtfully, trusts and testamentary trusts are less about clever tricks and more about giving your family flexibility and protection after you are gone. They help you shape how your wealth supports the people you care about, not just how much they receive on day one.

 

Pulling it together into your own property exit plan

Questions to ask before your next purchase

Most people pick a structure based on what feels easiest today. A better way is to ask a few future-focused questions before you sign the next contract:

• Am I likely to be a high-income earner when I sell this property?

  If you expect strong income later in your career, selling in your own name might mean a chunky CGT bill. Structures that spread gains, or an SMSF, may deserve a closer look.

• Do I want flexibility to share gains across family members?

  If you can see a spouse, adult kids or even parents being part of your financial picture later, a family trust might help share gains more tax-effectively, within the rules.

• Could super and an SMSF be a good long-term home for part of my portfolio?

  Property inside super is harder to touch and comes with more rules, but the tax rates on long-term gains can be very attractive, especially in retirement.

• How comfortable am I with extra administration for trusts or SMSFs?

  More structures usually mean more paperwork, higher accounting costs and stricter rules. If you hate admin, a simpler setup may be worth a bit of extra tax at the end.

You do not need a perfect answer to each question. The point is to look past settlement day and think about who will own the property, and in what headspace, when it eventually leaves your hands.

 

Conversations to have with your accountant and adviser

Instead of asking your accountant, “What’s the best structure?”, turn up with real scenarios and a bit of homework. That is where you get value.

Things worth bringing to the table:

• A list of your current properties, loans and ownership structures

• Rough timelines for each asset – hold forever, sell in 5–10 years, keep until retirement, etc.

• Your thoughts on helping children into the market or eventually leaving them property or income

• Any plans to use super more actively, or to set up or wind down an SMSF

Then ask them to stress test specific ideas, such as:

• What does it look like if I sell this property before I retire versus after?

• Would it be worth moving future purchases into a family trust, and what are the trade-offs?

• Does an SMSF make sense for one or two properties, or is that overkill in my situation?

• Should a testamentary trust be part of my will if I want to support young kids or grandkids?

Treat your accountant and adviser like a planning team, not just people who lodge returns or set up structures. You bring the goals, the family picture and the timeframes. They bring the rules and the numbers. Together, you can turn “I’ll just buy another property” into a clear, flexible exit plan that actually suits the life you are trying to build.

 

Turn today’s planning into tomorrow’s options

You do not have to turn into a tax lawyer to get this right. You just need to ask sharper questions and stop looking at each purchase in isolation. Every property has an ending. The sooner you think about that ending, the more choice you give yourself and your family.

A simple way to start is to jot down a rough exit plan for each property you own or plan to buy:

• Keep long term for income?

• Sell at a certain life stage?

• Gift while you are alive to help kids along?

• Pass on through your estate as part of a wider family plan?

Once you have that rough map, you can pull in the right help:

• Sit down with a qualified accountant who understands property and walk them through your actual properties, not just theory.

• Review your loan structure and borrowing capacity so your finance can support your long-term plan, not work against it at exit.

• Use data and professional support to choose suburbs and properties that line up with your long-term goals, rather than chasing short-term depreciation or a quick positive cash flow story.

This is where a platform like AbodeFinder can sit quietly in the background of your strategy. You can stress test your numbers, get a feel for what you can realistically afford in different suburbs, and sense-check potential purchases against your broader plan. Pair that with good advice and your future self – and your kids – are likely to thank you for the work you did now, not just the properties you bought.