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While the Federal Budget announcements continue to drip feed into legislation, investors and business owners are keen to understand what these changes mean for them, and what action, if any, should be taken now. We’ve summarised where the key announcements currently stand and added practical steps you can consider, even if the best move is to pause.
Snapshot of announcements and status
Capital Gains Tax (CGT) changes
| Subject | Status | Effective date |
|---|---|---|
| 50% CGT discount replaced with indexation | Passed into law | 1 July 2027 |
| Pre-CGT assets subject to CGT | Passed into law | 1 July 2027 |
| Grandfathering of market value – 1 July 2027 | Passed into law | 1 July 2027 |
| 30% minimum tax on capital gains | Passed into law | 1 July 2027 |
| Increase to small business CGT concession turnover threshold ($2m to $10m) | Passed into law | 1 July 2027 |
| Days’ apportionment method to calculate market value | Draft legislation | 1 July 2027 |
| Innovative Business CGT Concession (IBCC) | Consultation paper | 1 July 2027 |
| Other complexities – interaction with rollovers, residency changes, etc. | Draft legislation | 1 July 2027 |
Negative gearing
| Subject | Status | Effective date |
|---|---|---|
| Removal of negative gearing on residential properties acquired after 12 May 2026 | Passed into law | 1 July 2027 |
| Restrictions on borrowing in superannuation funds for residential property | Passed into law | 1 July 2027 |
| Family law and inheritance complexities | Draft legislation | 1 July 2027 |
| Definition of ‘new residential’ | Draft legislation | 1 July 2027 |
Changes to the taxation of trusts
| Subject | Status | Effective date |
|---|---|---|
| 30% minimum tax on discretionary trust distributions | Exposure draft legislation | 1 July 2028 |
| Election for discretionary trusts to make fixed distributions to pre-nominated beneficiaries and be exempt from the 30% minimum tax | Exposure draft legislation | 1 July 2028 |
| Special rollover provisions allowing tax deferral on transfers out of discretionary trusts | Exposure draft legislation | 1 July 2027 to 30 June 2030 |
The latest exposure draft provides an important new alternative for existing discretionary trusts. Rather than restructuring into another entity to avoid the proposed 30% minimum tax, a trust may elect to make fixed distributions to pre-nominated beneficiaries.
The Government has stated that the election would not require a restructure and is not expected to result in state or territory stamp duty. However, this remains an area requiring caution, with state revenue authorities yet to provide sufficient certainty around the duty treatment.
Under the proposed rules, nominated beneficiaries could generally only be added or changed following the death of a nominated beneficiary or a family breakdown. If the trustee makes distributions inconsistent with the election, the election would be revoked. The trustee would then be subject to the highest marginal tax rate plus Medicare levy for that income year, with the 30% minimum tax applying in subsequent years.
Other relevant announcements
| Subject | Status | Effective date |
|---|---|---|
| Loss carry back tax refund for companies | Passed into law | 1 July 2026 |
| Permanent $20k instant asset write-off for small businesses (less than $10m turnover) | Passed into law | 1 July 2026 |
| R&D tax incentive changes to thresholds | Announcement | 1 July 2028 |
| Winding back the FBT exemption for electric vehicles | Announcement | 1 April 2027 |
| Doubling audit thresholds for large proprietary companies | Announcement | N/A |
Practical considerations
These changes are far-reaching. Here’s a breakdown of practical steps for investors and business owners, tailored by asset class.
Investors
Investment structures
- The tax profile of existing structures is changing. Superannuation funds and testamentary trusts remain some of the most tax-effective vehicles.
- There are restrictions on entering these structures. For example, contribution limits apply to superannuation, while testamentary trusts are established through a will as part of estate administration.
- Investment companies are likely to grow in popularity, and family trusts still have their place in the right circumstances.
- The new proposed fixed-distribution election provides another option for existing discretionary trusts. Rather than restructuring or becoming subject to the proposed 30% minimum tax, trustees may elect to make fixed distributions to pre-nominated beneficiaries.
- While this may allow the existing trust structure and assets to remain in place, it comes at the cost of flexibility. The ability to vary distributions between beneficiaries each year is one of the principal advantages of a discretionary trust. Under the proposed election, that flexibility would be significantly restricted.
- This means the decision should not be driven solely by tax. Family circumstances can change significantly over time through marriage, divorce, children entering the workforce, retirement, succession and death. Fixing distributions today could therefore have significant consequences many years into the future.
- Asset rollovers don’t always fully exempt you from tax implications when changing structure. State Governments haven’t offered any extra concession on transfer duties, and any historical 50% CGT discount will be lost if you roll an asset into a company.
Tax profile of assets
- There is now a marked difference between the tax treatment of some assets over others.
- Negative gearing rule changes are aimed at ‘existing’ residential properties – not commercial, primary production or other asset classes.
- Residential ‘new build’ properties remain eligible for the 50% CGT discount and negative gearing.
30 June 2027 market valuation
- As drafted, only real property and assets without a readily ascertainable market value can use the days’ apportionment method.
- Market performance on and around 30 June 2027 will be crucial for setting the value for pre-CGT and 50% CGT discount assets.
- We’re seeing investors dispose of assets to ‘lock in’ the 50% CGT discount at current market values.
Business owners
Business structuring
- Restructuring a business is not as simple as the Budget announcements suggest. Moving a business involves substantial administration, which can be costly and take focus away from day-to-day operations. This includes registration changes, updating contracts and legal agreements, managing employee matters, asset transfer documentation and state tax considerations.
- For businesses operating through discretionary trusts, the new proposed fixed-distribution election materially changes the restructuring decision. Rather than restructuring the business or becoming subject to the proposed 30% minimum tax, an existing trust may be able to remain in place by electing to make fixed distributions to nominated beneficiaries.
- This effectively introduces a third option for many family businesses: accept the 30% minimum tax, restructure into another structure, or retain the existing discretionary trust and elect into the fixed-distribution regime.
- However, the third option is not without significant consequences. Business owners would be giving up much of the flexibility that led many families to use discretionary trusts in the first place. This could become particularly important for succession planning, where future ownership and participation by children, other family members or key employees may change over time.
- The stamp duty position also needs to be approached carefully. While the Federal Government says the election is not expected to trigger state and territory stamp duty, NSW, Victoria and Queensland authorities have not yet ruled out duty consequences. Clear guidance from the relevant state revenue authorities will therefore be important before businesses rely on the election as a duty-free alternative to restructuring.
- There are existing rollovers and concessions that may be preferable to the newly announced options. It’s important to consider all available avenues at the appropriate time.
30 June 2027 market valuation
- Both the days’ apportionment method and market value will be available for business owners to set the new cost base on 30 June 2027.
- The choice between these methods can be made at a later date, but a valuation done around 30 June 2027 will provide valuable evidence when needed.
- Business owners can take steps now to ensure a higher valuation by 30 June 2027.
Conclusion
Until legislation is passed, we are not recommending any large-scale restructuring purely in response to the Budget changes. However, it’s essential to review your circumstances now to understand how these changes could affect you both today and in the years ahead.
The latest proposed fixed-distribution election is an important development for family trusts. It potentially provides an alternative to both paying the 30% minimum tax and undertaking a potentially costly restructure. However, the price of that alternative may be giving up much of the flexibility that makes a discretionary trust attractive in the first place.
For family businesses in particular, the decision needs to extend well beyond the immediate tax saving. Succession planning, changes in family circumstances, asset protection, future beneficiaries and the ability to introduce the next generation into the business all need to be considered before locking in fixed distributions.
Unfortunately, there is no one-size-fits-all model. While tax efficiency is always important, your review should also consider asset protection, flexibility in distributions, lifestyle changes and succession planning. Each of these factors plays a role in shaping the right strategy for your situation.
