Structuring your property portfolio is an important tool for protecting your assets, minimising your tax liabilities and driving outsized returns.

Under this strategy, the discretionary trust (often referred to as a family trust) will acquire land, undertake development and sell the finished property/properties.

The proceeds can then be distributed to the beneficiaries of the trust, offering flexibility for your tax planning strategy.

To maximise the tax benefits of this approach, distributions are often made to children over the age of 18. To ensure compliance with tax legislation, all distributions must meet the rules outlined in Section 100A. Legislation surrounding distributions and structures is often complicated, but the rule clarifies that if a distribution to a child over the age of 18 is declared funds must be paid.

Beneficiaries of a discretionary trust usually also involve setting up a company, used as a vehicle to hold retained earnings that you may choose to not pay out to individual beneficiaries. The use of a company offers further tax planning flexibility, whilst also avoiding the need to consider tricky Division 7A rules.

In this structure, a company would be used to acquire land, undertake development and sell the completed project, all in its own right.

However, the key disadvantage of this structure is that if the entity accumulates profits, asset protection risk arises from any cash retained.

The shares in the company are ordinarily held by a corporate trustee for a discretionary trust.

This enables profits to be taxed at the company tax rate, however fully franked distributions are paid to a trust. The trust then pays out the distributions to beneficiaries, ensuring that final profits are taxed only at an individual's marginal tax rate.

One of the most common questions amongst property investors is whether to positively or negatively gear their property portfolios.

Depending on your situation, the tax advantages of negatively gearing your property may offer outsized returns.