Private Mortgage Lenders and Trust Structures After the 2026 Budget
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Private Mortgage Lenders and Trust Structures After the 2026 Budget
Private mortgage lenders read trust-secured files differently from personal-name files. The 12 May 2026 Federal Budget tightens that distinction with a proposed trustee-level minimum tax and a rollover relief window, neither yet law.
Quick Answer
Private mortgage lenders treat trust-secured private mortgage files differently from personal-name files. The 2026 Federal Budget proposes a trustee-level minimum tax on discretionary trusts and rollover relief, neither yet law. For self-employed borrowers, the borrower entity is the file, and the trust structure shapes appetite, pricing, and exit.
The misconception about trust-secured private mortgages
The misconception is that lenders treat trust-secured private mortgages the same way they treat personal-name files. On a trust-secured file, the borrower entity is the file. A discretionary trust holding an investment property reads differently across the credit committee than the same property held in a personal name, and the 12 May 2026 Federal Budget has tightened that distinction further.
Where this commonly lands is that the trust deed, the trustee identity, the beneficiary class, and the historical distribution pattern all enter the credit decision before the security itself. A trust-secured private mortgage is structurally distinct from a personal-name file, and the practical implication is that approval pathways, pricing posture, and exit options sit on different tracks depending on which structure holds the property.
That distinction was already a live underwriting question. The 2026 Budget made it a strategic one. The ATO new-legislation page for the proposed minimum tax on discretionary trusts is the anchor reference for everything that follows in this article.
What the 2026 Budget proposes for discretionary trusts
The 12 May 2026 Federal Budget announced a proposed trustee-level minimum tax of approximately 30 per cent on discretionary trusts, with a proposed effective date of 1 July 2028 if legislated. This is a proposed measure, as at the 12 May 2026 announcement, not yet law.
Two further elements of the proposed regime matter for trust borrowers reading their position today. First, the package includes a proposed rollover relief, 3-year window from 1 July 2027, designed to facilitate the transfer of assets out of discretionary trusts to entities that are not discretionary trusts. The rollover is a destination question, not just a timing question; the assets move out to unit trusts, companies, or partnerships, where the structure of the destination entity changes how the underlying property is taxed going forward.
Second, non-corporate beneficiaries currently entitled to a share of the net income of the trust will be able to claim a non-refundable income tax credit for the tax paid by the trustee on that income. The practical implication is that the 30 per cent trustee-level tax is not a flat after-tax drag where credit-eligible distributions apply; the credit offsets at the beneficiary level. The full mechanics sit on the ATO new-legislation page as a proposed measure, not yet law.
Who the regime applies to, and the exemption classes
The proposed regime applies to discretionary trusts only. That distinction is load-bearing for any trust borrower trying to read their own position before the legislation lands.
Per Budget Paper No. 2, the common Australian trust structures listed below fall outside the proposed 30 per cent measure: self-managed superannuation funds (SMSFs), fixed and widely-held trusts, charitable trusts, special disability trusts, and deceased estates. A borrower whose investment property is held in any of those structures is not within scope of the proposed trustee-level tax, even if the measure becomes law in its current form. The regulatory frame for that group is unchanged by the Budget announcement.
Where this commonly lands for a self-employed borrower with a mix of structures: the file you bring to a private mortgage lender should make clear, in writing, which entity holds which property, and whether each is a discretionary or non-discretionary structure. That single piece of clarity changes how the credit committee reads the post-Budget restructure posture for the file.
What passes the underwriter's read, and what fails
The objection lenders raise on trust-secured private mortgage files is not, strictly, about the trust. It is about the readability of the trust. A well-documented discretionary trust with a stable trustee, a current deed, a clear distribution history, and a named exit pathway is a credit-decision the underwriter can make. A trust whose deed is missing, whose trustee changed twice in two years, and whose distribution pattern doesn't tie back to lodged returns is a different conversation.
Passes the credit read
- Current trust deed available and provided up-front
- Trustee identity stable for 24 months or more
- Distribution history visible in lodged trust returns
- Beneficiary class fits the lender's accepted structures
- Exit pathway named (sale, refinance, distribution event)
- Personal guarantees aligned with the structure
Fails the credit read
- Trust deed missing, partial, or non-standard wording
- Recent trustee change without documented reason
- Distributions concentrated to discretionary beneficiaries with no return support
- No exit pathway, or exit relies on a single event outside the borrower's control
- Personal guarantee mismatch with the trust borrower
- Beneficiary class includes parties the lender does not accept
The right side of that pair is not a verdict on the borrower. It is a verdict on the file as it currently sits. Most files that land on the right side can be moved to the left with three weeks of paperwork, an updated deed, and an accountant's letter that explains the structure. Fit-led not rate-led is the way to think about it: the lender's appetite is shaped by what the file shows, not by where the headline rate sits in the market.
The post-Budget restructure posture, before legislation lands
For a self-employed borrower currently holding property in a discretionary trust with a private mortgage attached, the practical question is whether to act before the proposed rollover window opens. The answer is rarely a finance answer.
A few things are worth holding in mind. The measure is a proposed measure, not yet law, and the effective date of 1 July 2028 is two financial years out from publish. The rollover relief window, if legislated in current form, opens 1 July 2027 and runs for three years. Treasury exposure drafts may clarify the destination entity scope, the beneficiary credit mechanism, or the asset categories eligible for rollover before then. A decision made today on incomplete information is a decision that may be revised when the draft lands.
What the file should reflect in the meantime is honesty about the structure, a current deed, and an exit pathway the lender can see. The exit strategy on a trust-secured private mortgage is exit-by-refinance versus exit-by-sale, the same as on a personal-name file, but the structuring question for the trust sits underneath that decision. For trust-held projects on the build side, the construction loan pack sequence shows how a private mortgage sits inside the wider facility stack a builder typically runs.
Private mortgage lenders read trust-secured files on the structure, not just the security. The 12 May 2026 Federal Budget announced a proposed trustee-level minimum tax on discretionary trusts from 1 July 2028 and a 3-year rollover relief window from 1 July 2027, both proposed measures, not yet law. Common non-discretionary structures (SMSFs, fixed trusts, widely-held trusts, charitable trusts, special disability trusts, deceased estates) sit outside the proposed regime per Budget Paper No. 2. A well-documented file, a current deed, and a named exit pathway carry more weight than the headline structure.
Key takeaway: the borrower entity is the file; read the structure, document the file, and wait for the exposure draft before restructuring.Frequently Asked Questions
Private mortgages in Australia are regulated under different frameworks depending on the borrower purpose. Business-purpose and investment-purpose private mortgages operate outside the National Consumer Credit Protection Act, while consumer-purpose lending falls under the National Credit Code administered by ASIC. For self-employed borrowers using property security for business or investment, private lending is a legitimate non-bank funding option that sits in a distinct regulatory lane from major-bank retail mortgages.
Holding property in a discretionary trust changes the underwriter's read across several dimensions: the trust deed becomes evidence the lender reviews, the trustee identity creates the signing party, and the beneficiary class shapes how income and exits are treated. Where this commonly lands is that some lenders have lower appetite for discretionary structures than fixed trusts, while others write to both with structure-specific pricing. The trust deed, trustee identity, and distribution history all enter the credit decision before the property itself.
The proposed 30 per cent minimum tax announced in the 12 May 2026 Federal Budget applies to discretionary trusts only. Per Budget Paper No. 2, SMSFs, along with fixed trusts, widely-held trusts, charitable trusts, special disability trusts, and deceased estates, fall outside the proposed measure. The measure is a proposed measure on the ATO new-legislation page, not yet law, and is set to commence from 1 July 2028 if legislated.
Restructuring a discretionary trust before the proposed rollover window opens is a decision that depends on the entity you would restructure into, the assets you would move, and your own timing. The proposed rollover relief is a 3-year window from 1 July 2027 designed to facilitate transfers of assets out of discretionary trusts into entities that are not discretionary trusts (unit trusts, companies, partnerships). This is a tax and structuring decision, not a finance decision; speak with your accountant or lawyer before acting on the proposed measure.
A private mortgage can be written to a fixed trust borrower, and many lenders find fixed-trust files more straightforward to underwrite than discretionary structures because the beneficial ownership is defined in the deed rather than discretionary year on year. The borrower entity remains the file in either case, with the trust deed, trustee identity, and exit pathway shaping the credit decision. Speak to a broker about which lenders sit on which structure types.
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