Wealth

A discretionary (family) trust holds assets via a trustee, and each year distributes income and capital gains to chosen beneficiaries, who are then taxed at their own marginal rates. The appeal is flexibility: you decide, year to year, who receives what. Whether it helps you depends almost entirely on having beneficiaries in lower tax brackets and on what kind of assets you hold.

When it tends to make sense

• Income splitting. If one of you (or an adult child 18+, or a future low-income year) sits in a lower bracket, streaming income there cuts the family tax bill. With two high-PAYG incomes and no other beneficiaries, the splitting benefit is small — this is the crux for you today.
• A "bucket" (corporate beneficiary) company. Trust income above what low-bracket individuals can absorb can be distributed to a company and capped at the 25–30% company rate instead of 47%. Useful once the portfolio throws off substantial positive income.
• Positively-geared / income-producing assets. A mature share or property portfolio generating net income (dividends, rent) is the natural fit — the trust splits that income efficiently.
• Asset protection & estate flexibility. Assets aren't owned personally, which can matter if either of you carries business/professional liability, and distributions can adapt across generations.

Why it often does not help yet — the caveats that matter for your plan

• Losses are trapped. A discretionary trust cannot distribute a loss. A negatively-geared asset's loss stays locked in the trust and only offsets future trust income — you lose the ability to offset it against your salary. Since the model's edge is new-build IPs that still allow negative gearing personally (see IP section), holding those in a trust would throw that benefit away during the loss-making years.
• Land tax surcharge. Victoria (and NSW) charge a higher land-tax surcharge rate on land held in a discretionary trust — a real recurring cost on property held this way.
• Cost & compliance. Setup (~$1.5–3k, more with a corporate trustee) plus annual accounting, a separate tax return, and TFN/reporting obligations.
• ATO scrutiny. Distributions to adult children who don't actually receive the benefit are targeted under s100A (reimbursement agreements); family trust elections have their own traps.
• CGT is changing. Trusts (like individuals) currently get the CGT discount that companies don't — but from 1 July 2027 the 50% discount is being replaced (see IP section), which reshuffles part of the trust case.

A common sequencing pattern

Many advisers suggest: hold growth / negatively-geared assets personally while you can still use the negative-gearing and CGT levers (new builds, in your case), then use a trust + bucket company later for positively-geared income assets once the portfolio matures and/or lower-bracket beneficiaries exist. It is rarely all-or-nothing, and the right answer moves with your incomes, the number of properties, and the 2027 CGT changes. This is exactly the decision to model with an accountant before committing.

What the model does: your Up home loan (settled 16 Jul 2026, ~$585k over 25 years at 5.95% P&I) is simulated daily. Interest each day is charged on the loan balance minus your linked offset accounts, then debited monthly — exactly the mechanism in the Up Home PDS §2.1–2.3. Because you repay $2,000/fortnight (26 payments = $52,000/yr, above the ~$3,752/month minimum) and a growing offset suppresses interest, the loan clears years early. Extra repayments in this product create redraw (available headroom), while the offset is separate cash — the model treats both as available funds, which is why inheritance/windfalls and, in reverse, share purchases flow through the offset.

Why it matters: a dollar in the offset "earns" a guaranteed, tax-free-equivalent 5.95% (the interest you don't pay). That's the benchmark every other use of cash — investing, extra IP deposits — has to beat. Note: interest on your own-home loan is not tax-deductible (unlike an investment loan).

What the model does: your Income controls (base + bonus + super %) drive three things — super contributions, the marginal rate used to value IP depreciation (set to 47% = 45% top rate + 2% Medicare), and serviceability. The depreciation "tax refund" is that deduction × your marginal rate.

Levers worth knowing

• Marginal rates. The top rate of 45% (+2% Medicare) applies above $190k. Concessional super contributions are taxed at just 15% going in (30% if Division 293 applies), so salary-sacrificing into super is the cleanest legal rate arbitrage available to a high earner.
• Division 293. Once your income + concessional contributions exceed $250,000, an extra 15% applies to (the lesser of) those contributions — still leaving super concessions attractive, just less so.
• Deductibility. Investment-loan interest and IP costs are deductible; own-home loan interest is not. This is the whole logic behind holding debt against income-producing assets.

What the model does: each member's balance grows on the blended return of the REST options you allocate (Super investment strategy section), net of fees, with contributions added net of the 15% contributions tax. REST's default Growth option is used unless you change it; verified 10-year net returns seed each option (Growth ~7.33%, High Growth ~9.45%), each with a Standard Risk Measure band. Allocations must total 100%, and you can schedule a de-risking switch by date.

Rules that shape the strategy

• Preservation. Super is locked until preservation age (60) and generally a condition of release — it can't fund early-retirement drawdown before then, which is why the Retirement tab separates "investable now" from super.
• Contribution caps (2025–26). Concessional $30,000/yr, non-concessional $120,000/yr (bring-forward up to $360k if your total balance is under $2m). Rising to $32,500 / $130,000 in 2026–27.
• Tax in pension phase. From 60, an account-based pension is generally tax-free up to the transfer balance cap ($2.0m in 2025–26, $2.1m from 1 Jul 2026).
• Division 296 — the new $3m tax. From 1 July 2026, a total super balance over $3m pays an extra 15% (30% total) on the earnings share above the threshold; over $10m it's an extra 25%. The revised law taxes realised earnings only and indexes the thresholds. This is directly relevant — your super is projected well above $3m at 65, so beyond a point, dollars may be better placed outside super (a reason the trust question resurfaces).

What the model does: IPs are funded from savings + equity release (to 80% LVR), grow at your set rate, and — for new builds — kick off a depreciation schedule (Div 43 capital works 2.5%/yr of construction cost for 40 years, plus Div 40 plant on diminishing value). The resulting deduction × your 47% marginal rate is the annual "tax refund" the model reinvests into the current home loan until it clears, then cascades to the IP loans (the debt-recycling waterfall on the Loans chart).

The May 2026 Budget changed the rules — and it favours new builds

• Negative gearing on established homes is being abolished. For established residential property purchased after 7:30pm on 12 May 2026, from 1 July 2027 rental losses can no longer offset your salary — only other rental income or future rental capital gains (excess carried forward). Properties owned (or under contract) before that moment are grandfathered.
• The 50% CGT discount is being replaced. From 1 July 2027 it gives way to cost-base indexation + a 30% minimum tax on net capital gains for assets held >12 months. Your main residence stays exempt.
• New builds keep both levers. Eligible new builds — off-the-plan apartments, knock-down-rebuilds that add density, builds on vacant land — retain negative gearing and the 50% CGT discount. This is precisely why the model's strategy centres on new-build IPs: post-2027 they are the only residential path that keeps the tax treatment the whole plan relies on.
• Depreciation needs a quantity surveyor. The model's Div 43/40 figures are estimates; a QS tax depreciation schedule is what the ATO expects, and deductions only help to the extent you have taxable income to absorb them.

What the model does: a lump sum leaves the offset at the month you choose and compounds at the product's net-of-fee return. The default is Vanguard VDHG (Diversified High Growth, ~90% growth assets, ~0.27% MER, ~8.71% p.a. since 2017 inception), with VDGR/VAS/VGS as alternatives. Because the cash comes out of the offset — which also feeds your next-home deposit — the model shows the equity/LMI trade-off the diversion creates.

Worth understanding

• The hurdle rate. Investing offset cash gives up a guaranteed 5.95% interest saving for an expected (not guaranteed) market return — the case for diversifying is real, but so is the certainty you're trading away.
• Franking credits. Australian-share ETFs (e.g. VAS) distribute franked dividends that carry credits for company tax already paid, reducing your tax — a genuine edge these all-in-one funds pass through.
• CGT on sale. Units held >12 months currently get the 50% discount; note the same 1 July 2027 CGT change above applies to shares/ETFs, not just property.
• Fees compound too. A 0.27% MER is low, but over decades the fee drag is real — it's why index ETFs are the model's default.

What the model does: the Retirement tab runs two lenses. The first tests living only off returns — sustainable income = portfolio × your safe real return — so the capital keeps pace with inflation and is never touched. The second, Portfolio drawdown, does the opposite: it actually spends the portfolio down to an age you set, comparing budgets, so you can see when (or whether) the money runs out. Both draw from the same projected net worth and let you choose whether home equity counts.

Rules and benchmarks that anchor it

• Super access. Super can't be drawn until preservation age (60) — so an early-retirement plan leans on assets outside super (cash, shares, IP equity) to bridge the gap, which is why the "investable only" scope exists.
• Tax-free pension. From 60, an account-based pension is generally tax-free up to the transfer balance cap; balances above it, and Division 296 over $3m, change the after-tax picture.
• Safe withdrawal. The "live off returns" lens is a real-return rule of thumb; the drawdown lens stress-tests spending more than that. Reality sits between — and sequencing-of-returns risk (a bad early market) matters more than any single average.
• Age Pension. Even with a large portfolio, it's worth knowing the assets/income tests — they can supplement later in retirement. The ASFA Retirement Standard is a useful budget benchmark to sanity-check your figures.

The Portfolio drawdown section models this directly: each year net income (rent + ETF dividends) funds the budget first, and only the shortfall is sold, in the order cash → super (tax-free pension) → ETFs → whole investment properties, with CGT applied on the way. Here's the reasoning behind those mechanics.

Is a sale even required?

Not necessarily. If your assets throw off enough income — net rent from unencumbered properties plus dividends and a tax-free super pension — you can live off yield and never touch capital (the "live off returns" lens). The catch is that property net yields are low (~2–4% gross), so a property-heavy portfolio often can't cover the budget from income alone, which forces either lumpy whole-property sales or a transition to liquid assets.

The lifecycle "transition" logic

The sound play is the one you'd expect: use leverage + capital growth in property during high-income years (when negative gearing, depreciation and growth work hardest), then progressively de-risk into liquid, income-producing assets (ETFs, super) approaching retirement — so you can draw smoothly, live off yield, and never be forced to sell a house in a down market (sequencing risk). Because selling property to buy ETFs is itself a CGT event, stage it across low-income years (e.g. the gap between stopping work and drawing large super pensions). Super is the most tax-effective drawdown vehicle — tax-free pension from 60 up to the ~$2m transfer balance cap — but watch Division 296 above $3m.

Depreciation at 47% now vs CGT later — the clawback

Div 43 capital-works deductions reduce your CGT cost base, so the depreciation you claim is effectively clawed back as a larger capital gain when you sell. It's not free money — it's a timing + rate shift, and it works in your favour if you play it right: deduct at your 47% top rate now, and the clawed-back gain is taxed later when you're retired and low-income (lower marginal rate, and — for new builds — the 50% discount still halves the gain). The corollary you spotted is exactly right: depreciation is only worth ~47% while you're a top earner, and once you retire both new depreciation and the CGT hit are smaller — so the plan naturally front-loads depreciation into working years and back-loads CGT into low-income years. Post-1 July 2027 the 50% discount is gone for established property (indexation + 30% minimum tax); new builds keep the choice — the drawdown's "CGT discount" toggle lets you model either.

Passing property to the kids (Auston) tax-effectively

What doesn't work: gifting/transferring property to a child in your lifetime is a CGT event for you at market value (a deemed sale, even with no cash changing hands) plus stamp duty on the transfer — a double hit. And distributing income to a young child is taxed at penalty minor rates (up to 66%), so direct income-splitting to a 2-year-old doesn't help. The levers that do:

• Hold growth assets in a family trust from acquisition. Control passes to the next generation by changing the appointor/trustee — the asset's legal owner doesn't change, so no CGT and no stamp duty on the property when control passes. This only works cleanly if bought in the trust up front (moving one in later triggers the CGT + duty). Trade-offs: loss-trapping while negatively geared, land-tax surcharge, minors' penalty rates until 18 — see the trust section at the top.
• A testamentary trust in your will — often the highest-leverage, lowest-cost lever. On death assets roll in with no CGT (the beneficiary inherits your cost base), and income distributed to minor beneficiaries is "excepted trust income" taxed at ordinary adult marginal rates (full tax-free threshold) — ideal for young kids, and it costs you nothing in retirement income because you control everything while alive.
• Gift cash, not property (Australia has no gift tax) — clean, but it doesn't keep the income for you.

The through-line: decide the ownership structure before you buy the next assets — unwinding later costs CGT + duty. This is the single highest-value conversation to have with a registered tax agent + estate lawyer, especially with Auston in the picture.