It is a common arrangement. A family trust — sometimes Australian, often established offshore — buys an apartment or house in Melbourne, Sydney or Brisbane. A child studying in Australia lives there rent-free, or parents stay there when they visit or retire. The family sees it simply as “our home”.
Legally and for tax purposes, it is not that simple. The property belongs to the trustee, not to the person living in it, and the trustee holds it for all of the beneficiaries. Rent-free or discounted use can raise trustee, tax, land tax, foreign investment, family law and creditor issues. None of these are reasons to avoid the arrangement altogether, but each needs to be managed.
Is rent-free use authorised by the trust deed?
A trustee may only use trust assets as the trust deed allows. Many family trust deeds permit the trustee to let a beneficiary occupy trust property on terms the trustee decides, but not all do, and the wording matters. Even where it is allowed, the trustee must actually consider the question and make a decision, rather than simply letting the family move in.
Trustees also owe duties to all beneficiaries. Allowing one child to live rent-free for years may be a benefit to that child at the expense of others. In a harmonious family that may never matter. If relationships later break down — or after a parent dies — other beneficiaries may challenge whether the trustee acted properly.
Income tax: no rent, no deductions
If no rent is charged, the trust generally has no rental income from the property. The other side is that the trust generally cannot claim deductions for interest, rates, repairs or depreciation on the property, because it is not earning assessable income from it. Charging a nominal or below-market rent does not usually change this in the family’s favour, and may limit deductions to the rent received.
Capital gains tax: no main residence exemption
An individual who owns and lives in their home can generally claim the capital gains tax main residence exemption when they sell. A family trust generally cannot claim that exemption, even if a beneficiary lives in the property as their home. When the trust eventually sells, any capital gain will generally be taxable in the trust (with the treatment depending on how the gain is distributed and whether the trust is resident or foreign). Capital gains tax reforms that start on 1 July 2027 replace the 50% CGT discount with inflation indexation for Australian residents and introduce a minimum 30% tax on capital gains, so the timing of any sale, and a valuation at 1 July 2027, may matter.
Land tax and stamp duty: rules differ by state
Land tax and stamp duty are state and territory taxes, and the rules differ between Victoria, New South Wales, Queensland and other jurisdictions. In general terms:
- property held by a trust may not receive the principal place of residence exemption from land tax unless specific conditions are met — for example, about the type of trust and who occupies the property;
- some states impose additional surcharges on foreign persons and foreign trusts, which can apply at purchase (stamp duty) and every year (land tax); and
- whether a discretionary trust is treated as “foreign” may depend on who the potential beneficiaries are and on the wording of the deed.
Check the rules in the state where the property is located, and review them again whenever the family’s circumstances or the deed change.
Offshore trusts: is rent-free use a “benefit”?
This is where the most significant risk may lie. Under section 99B of the Income Tax Assessment Act 1936, an amount paid to, or applied for the benefit of, an Australian-resident beneficiary from a foreign trust may be included in the beneficiary’s assessable income, unless an exception applies (for example, certain distributions of corpus).
The ATO’s published guidance confirms that section 99B can apply to the use of trust property, not only to cash distributions. The ATO treats a resident beneficiary’s use of a foreign trust’s property as low risk only where the use is under a documented arrangement on commercial terms and the beneficiary actually pays the trustee a market amount for it. Rent-free or discounted occupation falls outside that, so the ATO may look at it more closely. The outcome still depends on the deed, how the property was funded and the terms of occupation. Specific tax advice is essential before, not after, the arrangement begins.
Foreign investment approval
A trust may be a “foreign person” under Australia’s foreign investment rules if foreign persons hold or may hold substantial interests in it. Foreign trusts buying residential property may need approval before purchase and may be subject to conditions, fees and restrictions — including on buying established dwellings. Rules in this area change, so obtain advice before any purchase or change in ownership.
At the time of writing, foreign persons are generally banned from buying established dwellings in Australia, with limited exceptions, and the ban has been extended to 30 June 2029. The trustee of a trust in which foreign persons hold a substantial interest is generally treated as a foreign person for these rules.
Family law and creditor risk
If a child living in trust property later marries or separates, a former partner may argue that the property, or the child’s interest in the trust, should be taken into account in a family law property settlement. Courts look at substance, including who controls the trust and how its assets have been used. Similarly, if the occupying beneficiary has creditors, the way the trust has been run may become relevant. Clear records help show what the arrangement really is.
Practical records to keep
- A written trustee resolution approving the occupation and recording the reasons.
- A written licence or occupancy agreement setting out who may live there, for how long, who pays outgoings and how it ends.
- A note of the market rent, and whether a market-rent arrangement was considered.
- Separate trust accounts — the occupant’s personal expenses should not be mixed with trust funds.
- Periodic reviews, especially when a child marries, a parent migrates or the trust deed is varied.
Composite hypothetical: a Malaysian family trust
This is an anonymised composite example, not a real family. A discretionary trust established in Malaysia, with a Malaysian corporate trustee, bought a Melbourne townhouse for the family’s daughter, who came to study and later became an Australian permanent resident. She has lived there rent-free for five years. Her brother in Kuala Lumpur and cousins in Jakarta are also beneficiaries.
On review, there was no trustee resolution allowing her to occupy the property, the trust had been paying the strata levies and council rates, and the land tax position had not been checked against foreign trust surcharges. Now that she is resident, there is also a question whether her use of the property could be treated as an amount applied for her benefit. The family obtains tax advice, the trustee documents its decisions going forward, and the family considers alternatives, such as a market-rent lease or a properly structured transfer.
Frequently asked questions
Can my child live in our family trust’s apartment for free?
Possibly, if the trust deed allows it and the trustee properly decides to permit it. But the tax, land tax and family law consequences should be considered first, especially if the trust is offshore and your child is an Australian tax resident.
Would charging rent solve the problem?
Charging a genuine market rent may change the tax position — rental income becomes taxable but deductions may become available — and may reduce some risks. A nominal rent generally does not achieve the same result. For established homes bought after 12 May 2026, rental losses will generally only be deductible against residential property income from 1 July 2027. Get tax advice from a registered tax agent or tax adviser on your figures.
Our trust is in Hong Kong. Does Australian land tax still apply?
Generally, yes. Land tax applies to land in Australia regardless of where the owner is based, and some states charge surcharges for foreign owners, including foreign trusts. The exact position depends on the state and the terms of the deed.
How Chua Tan Associates can help
Chua Tan Associates advises families, trustees and beneficiaries across Australia on trust deeds, trustee decisions, occupancy arrangements and the family law and succession issues that come with trust-owned homes. We work with your registered tax agent or tax adviser and with local lawyers overseas, so that legal, tax and cross-border issues are considered together. We advise in English, Mandarin and Cantonese.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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