Bare Trusts in Australia (2025): Rules, Uses & SMSF Insights

Bare trusts are making headlines in 2025 as property investors and self-managed super funds (SMSFs) navigate tighter regulations and evolving tax rules. Whether you’re planning to buy property through an SMSF or want a flexible way to hold assets, understanding bare trusts is crucial for compliance and smart structuring. Here’s what’s changed, what you need to know, and real-world examples to bring it all together.

What Is a Bare Trust and Why Is It Trending in 2025?

A bare trust, sometimes called a simple trust, is a legal arrangement where a trustee holds assets on behalf of a beneficiary, but the beneficiary has the absolute right to the asset’s capital and income. The trustee’s role is strictly administrative—they cannot make decisions on the beneficiary’s behalf. In Australia, bare trusts are especially popular for property purchases involving SMSFs, particularly under the Limited Recourse Borrowing Arrangements (LRBAs) framework.

• Direct Control: The beneficiary directs all actions—perfect for SMSFs needing transparency.
• Simple Tax Treatment: Income and capital gains go straight to the beneficiary for tax purposes.
• Asset Protection: Useful for separating legal ownership (the trustee) from beneficial ownership (the SMSF or individual).

In 2025, regulatory focus on SMSF borrowing and property investment is sharper than ever. The Australian Taxation Office (ATO) has updated compliance guidelines, requiring more granular reporting on bare trust structures to combat misuse and ensure transparency.

Bare Trusts & SMSFs: The 2025 Regulatory Landscape

SMSFs have long used bare trusts to buy property via borrowing, thanks to the LRBA provisions in superannuation law. However, the ATO’s 2025 updates have introduced new requirements:

• Stricter Audit Trails: SMSFs must provide detailed documentation proving the bare trust’s legitimacy, including trust deeds, loan agreements, and clear separation of assets.
• Reporting Deadlines: Annual reporting on bare trust holdings must now be submitted alongside SMSF returns, with penalties for late or inaccurate lodgment.
• Property Valuation Rules: The ATO now requires annual, independent valuations for property held via bare trusts.

Example: In early 2025, a Melbourne-based SMSF was fined for using a bare trust to purchase commercial property but failing to keep adequate records separating trust and fund assets. The ATO’s audit spotlighted the importance of transparent, up-to-date documentation.

Tax Implications and Practical Uses of Bare Trusts

For most Australians, the main advantage of a bare trust is tax simplicity—the beneficiary is taxed directly on all income and gains. But there are strategic uses beyond SMSFs:

• Family Asset Planning: Parents can hold assets for children under a bare trust, ensuring a straightforward transfer once the child comes of age.
• Property Development: Investors use bare trusts to isolate project risk or facilitate joint ventures.
• Estate Planning: Bare trusts can help distribute assets quickly and avoid probate delays.

But beware: the ATO’s 2025 crackdown means bare trusts can’t be used to obscure beneficial ownership or avoid tax. New cross-checks with the Australian Business Registry Services (ABRS) ensure that beneficial owners are properly disclosed.

Setting Up a Bare Trust in 2025: Steps and Pitfalls

Setting up a bare trust is relatively straightforward, but the 2025 compliance environment means you can’t afford shortcuts. Here’s what to consider:

1. Draft a Clear Trust Deed: The deed must identify the trustee, beneficiary, and the asset held. Boilerplate deeds are out; customisation is key to compliance.
2. Open Dedicated Bank Accounts: Don’t mix trust assets with personal or SMSF funds—segregation is now a regulatory requirement.
3. Register the Trust (if required): For property, registration with state land titles offices is often mandatory.
4. Maintain Up-to-Date Records: 2025 rules require evidence of all transactions, decisions, and asset valuations.

Practical tip: Annual reviews of your trust structure are now best practice, with many trustees engaging professionals for periodic compliance checks to avoid ATO scrutiny.

Conclusion: Is a Bare Trust Right for You?

Bare trusts remain a powerful tool for SMSFs, property investors, and families in Australia. But with the ATO’s 2025 compliance blitz, they demand attention to detail, proactive management, and ongoing documentation. Used wisely, a bare trust can unlock opportunities and provide peace of mind—but only if you stay ahead of the regulatory curve.