Yes, a family trust can negatively gear a property purchase, but the tax benefits typically work differently compared to individuals. Here’s how it functions in the context of a family trust:

Key Points:

1. Negative Gearing in a Trust:
   • A trust itself can own an investment property, and if the expenses (including interest on a loan) exceed the rental income, the trust may generate a loss.
   • However, trust losses generally cannot be distributed to beneficiaries to reduce their personal taxable income. Instead, the loss is trapped within the trust and carried forward to offset future profits or capital gains.
2. Loss Carry-Forward:
   • If the property is negatively geared, any loss incurred by the trust can be carried forward to future tax years. When the trust eventually makes a profit (e.g., through rent or a capital gain from selling the property), the loss can be applied to reduce the taxable income of the trust.
3. Trust Types Matter:
   • Discretionary family trusts are commonly used for tax planning, but the restriction on distributing losses to beneficiaries is one of their limitations.
   • Unit trusts or other structures may offer different tax benefits, but the fundamental rule remains: losses generally stay within the trust.
4. Taxation and Gearing:
   • While trusts offer flexibility in distributing income to beneficiaries (and potentially lowering their tax burden), the negative gearing benefits that individuals receive—where they offset rental losses against personal income—aren’t directly available.

Example Scenario:

Suppose a family trust purchases a negatively geared property. The trust incurs a loss of $10,000 in a financial year due to high interest and property-related costs. This loss cannot be distributed to the beneficiaries to reduce their personal taxable income. Instead, the trust carries the loss forward to future years, waiting until it earns a profit (through either rental income or a capital gain) to offset the loss.

Key Considerations:

• Personal negative gearing: If individual members of a family directly own a property, they can immediately offset losses against their personal income.
• Trust structure: The trust’s structure and purpose should be evaluated carefully, as it impacts how the negative gearing and future profits are treated.

Disclaimer:  This advice is intended to be general in nature. You should not reply on it as financial advice and you should certainly discuss any financial ideas and concepts with a qualified financial advisor. Always get specific financial advice relative to your exact personal financial situation and requirements.