Why buying property for your kids can backfire

There is something deeply protective about parents wanting to buy investment properties for their children.

Many parents have worked hard, learned the value of property, and assume that securing one good home for each child will set them up financially.

The intention is admirable. But viewed through a tax-planning and estate-planning lens, the priorities quickly shift back to the parents.

Tax planning objective

When parents bring us this strategy, we focus on the parents first for two fundamental reasons.

First, many parents are midway through their careers or nearing the end of their highest-earning years. They do not have decades to unwind inefficient structuring decisions. Every dollar lost to tax leakage, poor asset placement, or unnecessary capital gains exposure matters.

Second, children (especially those under 18) have their entire adult lives ahead of them: time to build wealth, make mistakes and recover.

Good tax planning prioritises the parents’ financial security and independence first, then plans the wealth transfer to the next generation.

Housing affordability: buying now vs helping later

It is also important to acknowledge the real driver behind this strategy: housing affordability.

Many parents worry that if they do not act now, their children may be permanently priced out as deposits get larger and borrowing capacity is squeezed by higher interest rates and living costs.

The tension is between buying now (locking in a property today) and helping later (building wealth in your own name and supporting the child when they are an adult and ready to buy).

Helping later can preserve flexibility: the child can choose the location and property type that fits their life, and parents can structure support as a protected loan or deposit assistance rather than taking long-term ownership risk themselves.

The longer a property is held in the parents’ name before it is sold or transferred, the more likely a large, embedded capital gain builds up.

When the eventual transfer occurs (which is commonly treated as a disposal), that gain can trigger a significant CGT liability at the worst possible time. In some families, the tax bill and transaction costs are so substantial that the property must be sold to fund them, negating the very purpose of buying it for the kids in the first place.

That is why it is critical to look beyond the intention and understand the practical costs that accumulate over time.

The hidden costs of buying property for the kids

This approach can be expensive in ways many families do not anticipate.

1. Ongoing ownership costs

Investment properties typically involve:

• land tax (when the property is not your principal place of residence)
• council rates
• insurance
• maintenance and repairs
• property management fees
• interest costs
• vacancy risk.

These expenses reduce cash flow and flexibility, and in many cases are rising faster than inflation.

2. Capital gains tax (CGT) and stamp duty on transfer

If parents buy a property in their own names today and later transfer it to a child, the transfer is generally treated as a sale for tax purposes.

In practice, this can mean:

• CGT is triggered
• Stamp duty may apply (state-dependent)
• Legal and transfer costs
• Refinancing requirements and lender approval
• Increased asset risk (for example, due to inexperience or relationship breakdown)

In other words, transferring the asset across generations can be heavily taxed and expensive.

3. Assumptions about lifestyle and location

This risk is rarely discussed.

Parents often assume that if they buy a strong property in Melbourne, Sydney, Brisbane or Perth, their child will one day want to live there.

In reality, adult children may:

• follow employment opportunities and partners
• move interstate or overseas
• prefer some distance from family
• choose a lifestyle that suits their stage of life (not their parents’).

You may have secured a great asset in a great location, but if it is the wrong location for your child, the benefit of your intention may never be fully realised.

A more efficient strategy

Instead of buying properties for the kids while they are minors, consider this sequence:

1. Build wealth in your name and/or appropriate structures.
2. Optimise tax outcomes during your peak earning years.
3. Reduce non-deductible debt.
4. Strengthen retirement funding.

Once children are over 18, earning an income, and more settled in their life and relationships, the strategy can change.

At that point:

• A property can be purchased in the adult child’s name, with parents assisting via a deposit.
• That deposit can be protected through a properly documented loan agreement (often with discretionary features).
• If the child lives in the property, the main residence exemption may apply from the date of purchase (subject to conditions).
• If the property is an investment, deductions generally belong to the child (as the owner).
• There is no CGT event simply to “transfer” the property later, because the child owns it from the start.
• The child chooses the property that suits them, supporting autonomy and pride of ownership.

The main residence advantage

If an adult child purchases a property in their own name and lives in it, it may qualify for the main residence exemption under Australian tax law.

Australian Taxation Office (ATO) rules may allow:

• A full main residence exemption for the period the property is lived in (subject to the rules).
• Potential access to the “absence rule” (often referred to as the six-year rule) if the property is later rented out, subject to conditions.

This can be a significant advantage for a young person entering the market while still uncertain about where they will live long term.

The emotional overlay

Parents often say, “We just want them to be secure.”

Property security is not built through control; it is built through support.

When financial backing is paired with flexibility and respect for how someone chooses to live, it can reduce pressure, remove dependency dynamics, and prevent resentment building between parents and children.

Control may protect assets in the short term, but support preserves relationships over the long term.

Buying assets now can lock in:

• location
• timing
• ownership structure
• tax consequences.

Allowing adult children to choose their own property, in their own time, with parental support behind them gives them ownership without pressure.

And that often matters more than parents realise.

The tax planning shift

A well-structured plan often looks like this:

• Prioritise your financial future: retirement funding and debt reduction.
• Build assets in the most tax-effective ownership structure for your circumstances.
• Maintain flexibility as family circumstances change.
• Assist children once they are adults, financially active, and more financially mature.
• Use gifting strategically, with documented protections (for example, appropriately drafted family loans).

The most loving financial decision to support your children is not always the one that gets them on the property ladder at the earliest stage.

Secure your own financial independence first by optimising your tax position while you still have peak earning capacity. Then it might be time for the Bank of Mum and Dad to step in at the right time with capital, clarity and proven structures.