BUDGET CHANGES - TIME TO RETHINK YOUR STRATEGIES?

The Budget

To date, Australian private groups have been utilising discretionary trusts to great effect. The flexibility and asset protection benefits of this structure have been a boon to those private groups.

The proposed tax changes outlined in Labor Government’s 2026-27 Budget might mean that it is time to change the way that private groups think about structuring. The headline grabbing items have been the minimum tax payable by trustees on distributions of income from discretionary trusts (of 30%) and the watering down of the CGT discount (with a minimum 30% rate applying to net capital gains).

We are also concerned about the indication in Budget Paper No 2 that companies that are the beneficiaries of trusts will not receive a tax offset accounting for the 30% minimum tax.

A new opportunity?

While such changes may require a shift in thinking, it also opens up new opportunities to review alternative vehicles such as corporate structures and how their internal architecture and structuring can be used to benefit clients. The arguments for using companies in structuring private groups over discretionary trusts has been growing in strength, including because of the complexity of the current legislation relating to discretionary trusts. The proposed tax changes might be a signal to those thinking about new structures (or restructuring old structures) to look to the company as a potential option.

What next?

Without having the benefit of legislation to review, it is impossible to say what the ‘correct’ approach might be for taxpayers in response to the changes described in the Budget. We await that legislation so that we can support our clients through this structural change.

We have not been quiet in this area. Tom King of Smailes Krawitz recently presented to the tax profession at the WA Tax Forum on restructuring, including how private groups might navigate the CGT roll-over and restructuring provisions.

The Budget also outlines a new roll-over relief available from 1 July 2027 (for three years) supporting restructuring out from a discretionary trust to a company or fixed trust. Whether this roll-over relief will be useful or not depends on its exact terms and other considerations (such as state-based taxes that may apply to changes involving dutiable property). Taxpayers and private groups with a discretionary trust structure might quite rightly question whether the status quo is no longer fit for purpose.

Smailes Krawitz routinely acts for taxpayers navigating complex trusts, tax, succession planning, and re-structuring matters.

Seeking early advice on the application of any concession, exemption, rollover, re-structure or transfer of assets or wealth can save vast amounts of time and money down the road.

Follow us on LinkedIn for our latest updates HERE.

The material in this article is provided only for general information. It does not constitute legal or other advice. 

Limited Liability by a scheme approved under Professional Standards Legislation.

Read the Smailes Krawitz Disclaimer HERE.