Family Business Tax Planning: Investment Property and Trust Strategies

Running a family business or building wealth through investments comes with its own tax challenges and opportunities. The ATO is watching these areas more closely than ever, but there are still plenty of legitimate ways to structure your affairs to minimise tax – you just need to know the rules and play by them.

What’s New for Individual Taxpayers in 2025

Tax Cuts Are Coming (But Not Yet)

The government has passed legislation for tax cuts, but they don’t start until 1 July 2026:

• The $18,201-$45,000 tax bracket drops from 16% to 15% in 2026-27
• Then down to 14% from 2027-28
• Maximum annual saving will be $536 once fully implemented

Medicare Levy Threshold Goes Up

Good news for lower-income earners – the threshold where you start paying the 2% Medicare levy has increased for 2024-25:

This change is backdated to 1 July 2024, so you’ll see the benefit when you lodge your 2024-25 tax return.

Investment Property – The ATO is Watching

Investment properties are a popular wealth-building strategy in our region, but the ATO has been cracking down hard on dodgy claims. Here’s what they’re particularly focused on:

Is Your Property Actually Available for Rent?

Red flags that trigger ATO attention:

• Family members using the property for free
• Holiday homes that are mysteriously “unavailable” during peak season
• Properties listed at ridiculously high rent that no one would pay
• Long periods where the property is “off the market” for convenience

The Murray River effect: We see this a lot with river properties around Albury-Wodonga. Just because you own a house at the lake doesn’t mean you can claim it as an investment property if your family uses it every school holidays.

Safe approach:

• Keep genuine rental records
• Use realistic market rent (get a proper rental appraisal)
• Document any periods when the property is genuinely unavailable

Loan Interest Claims – Getting It Right

This is where many people come unstuck. The ATO gets data directly from your bank, so they can see exactly what you’ve borrowed and what you’ve spent it on.

Common mistakes:

• Refinancing your investment loan to pay for a family holiday, then claiming all the interest
• Using redraw facilities for personal expenses
• Claiming interest on money borrowed for your family home

The golden rule: You can only claim interest on money actually used to buy or improve the investment property. Keep separate loans for separate purposes.

Repairs vs Capital Improvements – Know the Difference

This trips up heaps of property investors. The difference determines whether you can claim it immediately or spread it over 40 years.

Immediately deductible repairs:

• Fixing a leaky tap
• Replacing broken floorboards
• Repainting walls that are damaged
• Replacing a few fence palings

Capital improvements (claim 2.5% per year for 40 years):

• Renovating the whole bathroom
• Installing a new kitchen
• Adding a deck or pergola
• Extending the house

The “initial repair” trap: You can’t claim repairs that were needed when you bought the property. If the bathroom was stuffed when you bought it, fixing it is a capital improvement, not a repair.

Co-Ownership Rules

If you own a property with someone else, you must claim expenses and income according to your legal ownership, not who actually pays the bills.

Joint tenants: 50/50 split, regardless of who pays Tenants in common: According to ownership percentage (could be 60/40, 70/30, etc.)

This catches lots of couples where one person pays all the bills but they’re joint tenants.

Depreciation Strategies

Building Allowance (2.5% per year):

• Construction after 15 September 1987
• Claim over 40 years from completion
• Substantial renovations may qualify

Plant and Equipment:

• Diminishing value or prime cost methods
• Consider professional depreciation schedule
• Second-hand assets: limited to seller’s rate

Capital Gains Tax Planning

CGT Discount and Timing

50% CGT Discount:

• Available for assets held over 12 months
• Not available for trading stock or business income

Timing Strategies:

• Defer sales to next financial year if beneficial
• Realise capital losses before 30 June
• Consider installment sales to spread gain

Small Business CGT Concessions

Four Concessions Available:

1. 15-Year Exemption: Complete exemption if owned 15+ years
2. 50% Active Asset Reduction: Reduce gain by 50%
3. Retirement Exemption: $500,000 lifetime limit
4. Rollover Relief: Defer gain by purchasing replacement assets

Basic Tests:

• $6 million net asset test OR $2 million aggregated turnover test
• Active asset test (used in business for 50% of ownership period)
• 80% test (80% of company/trust assets are active assets)

Family Tax Strategies

Income Splitting Opportunities

1. Spouse in Business

Legitimate Arrangements:

• Spouse performs genuine work
• Remuneration at market rates
• Proper employment records
• Real delegation of responsibilities

Warning: The ATO scrutinises arrangements that divert income without genuine work or risk.

2. Family Trusts

Benefits:

• Income distribution flexibility
• Asset protection
• Succession planning
• Tax minimisation within family group

Family Trust Election (FTE) Considerations:

Benefits:

• Access to CGT concessions
• Franking credit trading
• Loss recoupment advantages

Restrictions:

• Distributions outside family group attract 47% penalty tax
• No Commissioner discretion to waive penalties
• Elections difficult to revoke

2025 Family Group Includes:

• Specified individual and spouse
• Children, grandchildren, and their spouses
• Brothers, sisters, and their spouses
• Parents and grandparents

3. Minor Beneficiaries

Unearned Income Tax Rates for Under 18s:

• First $416: Tax-free
• $417-$1,307: 66%
• Over $1,307: 45%

Exceptions (taxed at adult rates):

• Employment income
• Business income where minor involved
• Distributions from testamentary trusts

Trust Distribution Planning

Critical Deadline: 30 June 2025

Essential Actions:

• Review trust deed definitions of income
• Identify valid beneficiaries
• Prepare clear, binding resolutions
• Consider tax rates of beneficiaries
• Check family trust elections

Common Trust Mistakes

1. Invalid Beneficiaries: Distributing to entities not defined as beneficiaries
2. Late Resolutions: Missing 30 June deadline
3. Unclear Resolutions: Ambiguous distribution instructions
4. FTDT Breaches: Distributing outside family group
5. Poor Record Keeping: Inadequate documentation

Section 100A Considerations

Reimbursement Agreement Risks: The ATO is focusing on arrangements where:

• Beneficiary doesn’t receive distribution in practice
• Funds used for someone else’s benefit
• Circular arrangements to reduce tax

Green Zone (PCG 2022/2):

• Distributions to adult children for personal use
• Commercial terms applied
• No reimbursement agreements

Investment Income Strategies

Dividend Strategies

Franking Credit Optimisation

45-Day Rule:

• Must hold shares for 45 days (90 for preference shares)
• Applies to shares worth over $5,000 including franking credits
• “At risk” for required period

Timing Considerations:

• Consider dividend timing for tax year selection
• Family trust elections may be needed for franking credit trading

Dividend Streaming

Anti-Streaming Rules:

• Different shareholders receiving different ratios of franked/unfranked dividends
• Can result in streaming adjustments
• Professional advice essential for complex structures

Interest and Investment Income

Timing Strategies

Accruals vs Cash:

• Individuals: Generally cash basis for interest
• Companies: Accruals basis
• Consider timing of investment maturities

Prepaid Interest:

• Limited to $10,000 per investment
• Must claim over period of benefit
• Some exceptions for small amounts

Energy and Environmental Incentives

Energy Bill Relief

$150 Energy Bill Rebate:

• Extended until end of 2025
• Automatically applied quarterly
• Available to households and small business

Home Battery Discount

From 1 July 2025:

• 30% discount on installed costs
• Saving around $4,000 on typical battery
• Extends existing Small-scale Renewable Energy Scheme

Electric Vehicle Benefits

FBT Exemption:

• Zero emissions vehicles remain FBT-free
• Plug-in hybrid exemption ended 31 March 2025
• Some transitional arrangements for existing arrangements

Property and Housing Measures

First Home Buyer Support

5% Deposit Scheme:

• No income caps or place limits (expanded scheme)
• Higher property price limits
• Government underwrites mortgage insurance
• Australian citizens or permanent residents
• Haven’t owned property in last 10 years

Foreign Investment Changes

Established Dwelling Ban:

• 2-year ban on foreign ownership of established homes
• From 1 April 2025
• Limited exceptions apply

Foreign Resident CGT:

• Implementation delayed to 1 October 2025
• Broader range of assets subject to CGT
• Disclosure requirements for large transactions ($20M+)

Year-End Tax Planning Actions

Investment Review Checklist

Capital Gains/Losses:

• Review unrealised gains and losses
• Consider crystallising losses before 30 June
• Plan timing of asset sales
• Assess small business CGT concession eligibility

Investment Properties:

• Ensure genuine availability for rent
• Review loan purposes and interest claims
• Separate repairs from capital improvements
• Check depreciation claims

Family Structures:

• Review trust distributions by 30 June
• Check family trust election compliance
• Consider income splitting opportunities
• Review beneficiary tax rates

Documentation Requirements

Essential Records:

• Contracts and settlement statements
• Loan documents and purpose statements
• Rental income and expense records
• Share trading records with dates
• Trust minutes and resolutions
• Market valuations for related party transactions

Common Mistakes and ATO Penalties

High-Risk Areas

Property:

• Overclaiming interest deductions
• Claiming repairs that are capital works
• Insufficient rental activity documentation

Family Trusts:

• Distributions outside family group
• Invalid or late distribution resolutions
• Poor record keeping

Investments:

• Incorrect CGT calculations
• Fabricated capital losses
• Trading stock treated as capital assets

Penalty Regime

Administrative Penalties:

• 25% for lack of reasonable care
• 50% for recklessness
• 75% for intentional disregard

Criminal Penalties:

• Tax evasion prosecution
• Up to 10 years imprisonment
• Substantial financial penalties

Professional Advice: When It’s Essential

Complex Situations Requiring Expert Help:

• Multiple property ownership
• Family trust structures
• Business and investment combinations
• Significant capital gains
• International investments
• Succession planning

Red Flags for Professional Review:

• Aggressive tax positions
• Unclear ATO guidelines
• Significant money involved
• Complex family arrangements
• Previous ATO audits

Take Action Before 30 June:

The strategies in this guide can save significant tax, but implementation requires careful planning and proper documentation. With the ATO’s increased focus on compliance, the cost of getting it wrong far exceeds the investment in professional advice.

Don’t Wait – Key Deadlines Approaching:

• 30 June: Trust distributions, asset sales timing
• 30 June: Capital gains/loss crystallisation
• 28 April: Superannuation guarantee payments

Ready to get your family and investment tax strategies sorted?

Family structures and investment planning can save serious money, but they’re also where the ATO focuses a lot of attention. Getting the balance right between tax efficiency and staying out of trouble requires local knowledge and up-to-date expertise.

Book your family tax planning consultation

Complete Tax Planning Series:

• ← Small Business Tax Strategies for 2025: Essential Planning Before June 30 – Essential tax saving strategies
• ← Superannuation Planning for Business Owners: 2025 Updates and Strategies – Building wealth through super
• Family Business Tax Planning: Investment Property and Trust Strategies ← You are here
• Advanced Business Structures: Tax Planning for Growing Businesses → – Complex strategies for serious businesses
• Why Smart Business Owners Never Skip Tax Planning → – Why tax planning transforms your business

This information is general in nature and should not be considered as personal financial or tax advice. Family and investment tax strategies involve complex legal and tax considerations. Individual circumstances vary significantly, so always seek professional advice before implementing any strategy