Our first article examined the new CGT framework, including the end of the 50% discount, indexation, the 30% minimum tax and the June backdown. This article looks at what the changes mean for discretionary trusts (Family Trusts) and the costs and risks of responding.
Our first article: 2026-27 Federal Budget: The End of the 50% CGT Discount: What It Means for You, covered the mechanics of the new CGT framework: the replacement of the 50% discount with indexation and a 30% minimum tax, the three cases illustrating who is caught, and what the June backdown changed. This article turns to the structural question that sits underneath all of it: what do the changes mean for the discretionary trust (family trust), and what are the real costs and risks of responding to them?
Why the Discretionary Trust (Family Trust) Became the Backbone of Private Enterprise
To understand what is being lost, it is worth being clear about why the discretionary trust became so central to private wealth in Australia. Income splitting is the least interesting part of the story. The real reason is asset protection, and it is inseparable from the willingness to take commercial risk.
An entrepreneur who starts a business risk all their capital. As a director, the corporate veil is pierced in more ways every year, through directors’ duties, personal guarantees, the director penalty regime, and insolvent trading exposure. Running a genuine business means accepting that a director’s personal assets are exposed if things go wrong. The trust, holding the family’s long-term assets and home outside the operating risk, is what made that risk bearable. It lets a founder know that whatever happened to the business, the family kept a roof over their heads.
Around that core grew two ordinary and legitimate practices. Profits were streamed to a bucket company and taxed at the company rate, leaving capital in the group to reinvest. Where profit was retained in the trust, top-up tax was paid and the capital held for the long term. Bucket companies were also the standard way to manage Division 7A and to fund family expenses in an orderly way. This is how productive private capital was accumulated and recycled across a generation of private business owners.
What the Budget Does to That Structure
A 30% minimum on trust income, layered on the loss of the CGT discount, renders the trust-to-bucket-company structure redundant at best and punitive at worst. If retained capital is taxed near a top rate however it is held, the central reason to carry the structure falls away. And if capital is taxed like salary whether you build a business, the question a founder is left with is blunt: why take the risk at all?
That question is not rhetorical. A system that taxes the rewards of enterprise like wages, while leaving the founder to carry all the downside personally, tilts the choice toward being an employee rather than a builder. Over time, an economy that does that has fewer private businesses, less of the risk-taking that drives productivity, and a heavier reliance on large incumbents and government.
The mechanics of the CGT change as it applies to trusts are more complex than the headlines suggest. The net capital gain calculation in section 102-5 of the Income Tax Assessment Act 1997 has been rewritten from five steps to seven, with four new categories tracking whether each slice of gain is residential or non-residential, and whether it arose before or after 1 July 2027. A gain realised in a trust and streamed to a bucket company, then on to an individual, can be taxed at each layer in a way the old flat-discount system never produced.
Former Treasury analysis, reported by the Australian Financial Review, puts the integrated tax on company profits returned to a top-rate shareholder at about 51% under indexation, up from about 46%, already the third highest in the OECD. Where a trust and a beneficiary company both sit in the chain, the combined burden can climb towards 63%. These are not outcomes anyone designed. They are by-products of layering a minimum tax onto a trust system built around the discount.
The Restructuring Trap
The obvious response to the trust changes is to restructure out of a discretionary trust into a company, and the Government has pointed to a three-year income tax rollover to allow that without an income tax cost. There are two problems it does not solve.
Stamp duty. Transfer duty is a State and Territory tax, and to date no State or Territory has offered duty relief for families restructuring in response to these Commonwealth changes. An income tax rollover does not switch off duty. Moving a portfolio of property and business assets out of a trust is dutiable in most jurisdictions, assessed on market value. For a family group of any size, that is a duty bill in the hundreds of thousands, or for larger groups, the millions, simply to reorganise assets the family already owns.
Division 7A. The moment a group can no longer stream operating company income out to a bucket company or to family members to service Division 7A loans, unpaid present entitlements and existing loan arrangements can trigger deemed dividends. Families may face large, immediate tax bills not because anything has been taken out of the business, but because the orderly mechanism they have used for years to manage Division 7A has been closed off.
CASE 4: The family construction group, twenty years in the making
A founder started in construction two decades ago and built the business the hard way. The early years meant long days on site and longer nights on the books, physical work that took a real toll on his body, and time away from a young family that strained the relationships he was working so hard to provide for. Many business owners will recognise the trade.
Today the family group holds about $20 million of assets inside a discretionary trust, built from reinvested after-tax profit, with a bucket company managing Division 7A and family outgoings.
Under the announced changes, the structure that built and protects that wealth is now the structure being targeted. Restructuring into a company may be sensible, but the income tax rollover does not address duty. On a $20 million asset base, the transfer duty cost across the relevant properties and entities could run well into seven figures, payable in cash, on assets the family already owns. At the same time, the bucket company arrangements that have managed Division 7A for years are upended, with the risk of deemed dividends and a further tax bill.
A family that did everything lawfully and productively for twenty years faces a multi-million-dollar cost simply to respond to the change, with no State having matched the Commonwealth’s income tax rollover with duty relief.
The Durability Problem
There is a layer of complexity unique to this set of changes, and it matters enormously for any restructuring decision: the rules may not last.
The Coalition has said plainly: through both the Opposition Leader and the Shadow Treasurer, that it would repeal the measures if elected and restore negative gearing. One Nation supports negative gearing on two homes for every Australian. Whatever one’s view of the politics, the consequence for planning is the same. A family that incurs millions in duty to restructure now faces the real possibility that a future government reverses the changes and strands that cost.
The greater risk is rarely the policy change itself. It is the gap between a shifting legal environment and structures built for a different set of assumptions, made worse here by the chance the rules move again.
Beyond any single family, the cumulative effect is to add cost, complexity and uncertainty at the moment the country most needs private capital to stay and grow. Uncertainty of this kind has a name in capital markets. It is sovereign risk, and it weighs on Australia’s ability to attract and retain investment.
The Australian Financial Review has reported Australian founders openly weighing a move offshore. One West Australian software founder, who left a six-figure salary to self-fund his start-up, described exploring a move to Singapore or New Zealand, where the CGT rate on a sale is zero, specifically to avoid a 47% effective rate on exit. For clients with genuine optionality across Asia and New Zealand, residency and structuring choices that were once a matter of convenience are becoming a matter of after-tax outcome.
What to Do Now
For most family groups, the right first steps are diagnostic rather than transactional. Acting before the rollover terms, the duty position across relevant States, and the final legislative carve-outs are settled risks a cost that a reversal or a late amendment could strand.
The practical work we are doing with clients now includes:
Building a CGT asset register across every entity ahead of the 1 July 2027 split. Triaging which assets need a formal valuation at that date and commissioning them early, before the queue for valuers becomes unworkable. Modelling proposed disposals before and after 1 July 2027 where a sale is contemplated, so timing decisions are made with real numbers. Assessing trust and bucket-company structures against the announced trust tax, the duty exposure, and the Division 7A consequences of any restructure, before committing to one. And for clients with interests across Asia and New Zealand, reviewing residency and cross-border holding structures in parallel, because for some families the most efficient answer is not confined to Australia.
Why Brightstone Legal, and Why a Tax Lawyer, Not Just an Accountant
LMost clients will hear about these changes from their accountant, and a good accountant is essential to the numbers. But the response this Budget demands is, at its core, legal work: restructuring entities, redrafting trust deeds, managing duty and Division 7A exposure, and deciding what to change and when in an environment that may yet shift again. There are two reasons a law firm is the right place to lead it.
Legal professional privilege. Frank conversations about restructuring, asset protection and risk are most valuable when they are protected. Advice from a lawyer attracts legal professional privilege. Accountants’ advice generally does not, and the limited statutory accountants’ concession is narrower and more fragile than many clients realise. When the subject is how a family group reorganises its affairs in response to a contentious tax change, the protection that privilege provides is not a technicality. It is the difference between a candid strategy and a discoverable one.
Cross-border structuring. For our clients, the best answer is often not confined to Australia. We are well versed in structures across Asia and New Zealand, and we work alongside trusted advisers in those jurisdictions. That lets us hold one open, honest and privileged conversation across the whole of a client’s affairs, onshore and offshore, rather than treating the Australian position in isolation.
| What we do | How |
|---|---|
| Review | A privileged assessment of whether your existing trust, company and property structures still serve their purpose under the new rules |
| Plan | Modelling the duty, rollover and Division 7A cost of any restructure, and the timing of disposals relative to 1 July 2027, before you commit |
| Implement | Executing the chosen response, from entity restructures and deed amendments to valuation triage and the cross-border elements |
| Coordinate | Working with your accountant and overseas advisers under one privileged conversation, so the Australian and offshore positions fit together |
If you are about to make a decision that turns on the old assumptions:
- A purchase or sale, a restructure,
- Property held jointly across family,
- A separation or property settlement, or,
- A commercial transaction
the timing now carries tax consequences it did not a year ago. We would rather have that conversation early than unwind a problem later.
To discuss how these changes affect your position, contact our Tax Lawyers and Private Clients team to arrange a confidential, privileged consultation.
Disclaimer: This article is based on the 2026–27 Federal Budget measures, the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 as introduced, the Income Tax Rates Amendment (Tax Reform No. 1) Bill 2026, and the further concessions announced on 18 June 2026. At the date of publication, the Bills have not been enacted and remain before a Senate committee. The 30% minimum tax on discretionary trust income and the restructuring rollover are announced policy not yet introduced as legislation. Rates and figures are indicative and depend on individual circumstances. Transfer duty is a State and Territory matter, and the position differs between jurisdictions. This article is general information only and does not constitute legal or tax advice. You should obtain advice tailored to your circumstances before acting.
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