Five case studies showing why future family trust planning will become more bespoke.
The proposed 30% minimum tax on discretionary trusts does not produce the same answer for every family trust.
For many established family groups, the more important issue may not be the 30% minimum tax itself. It may be how to preserve the value of capital gains accrued before 1 July 2027, particularly where assets have been held for many years and qualify for the existing 50% CGT discount.
The following simplified case studies illustrate some of the choices that may arise.
Common Assumptions
For simplicity, each example assumes:
- the existing trust is an Australian discretionary family trust;
- relevant assets have been held for more than 12 months;
- the assets are retained beyond 1 July 2028;
- any pre-1 July 2027 capital gain qualifies for the existing 50% CGT discount;
- there are no debts, carried-forward capital losses or unusual beneficiary circumstances unless stated otherwise; and
- post-1 July 2027 appreciation is initially ignored so that we can isolate the treatment of the grandfathered gain.
Under the CGT reforms already enacted, a trust’s gain accrued to 30 June 2027 can be preserved as a separate deferred gain and retain its character as a discount capital gain.
In reality, most assets will of course increase or decrease in value after 1 July 2027. The post-2027 component will be subject to the new CGT architecture, including cost-base indexation and potentially the separate minimum tax on real capital gains. Further legislation dealing with the interaction between that regime and the proposed discretionary-trust minimum tax is still expected.
These case studies should therefore be regarded as planning illustrations rather than prescriptions for any particular taxpayer.
Proposed Rules: Brief recap
It will be recalled that from 1 July 2028, trustees of affected discretionary trusts will generally be subject to a 30% minimum tax on the trust’s taxable income. Gavel Law has written extensively about the forthcoming changes to the taxation of trusts.
- 2026 Federal Budget Summary
- Federal Budget Trust Reform: Proposed 30% Minimum Tax on Discretionary Trusts
- Federal Budget Tax Reform: Where Things Stand
- Residential Property Tax Reform: New Negative Gearing and SMSF Borrowing Restrictions
For many families this may still be an acceptable result. A 30% minimum tax does not necessarily represent additional tax where the relevant beneficiaries would already have paid tax at rates of 30% or higher.
However, the proposed rules will make it punitive to make distributions to corporate beneficiaries. (Such income will be subject to at least double tax.) Furthermore, the regime can materially affect distributions to lower-taxed beneficiaries and may reduce some of the historical tax flexibility associated with discretionary trusts.
An existing discretionary trust may instead make a once-only Excluded Election Trust (EET) election, nominating the beneficiaries who will receive the trust’s income and capital and specifies their fixed proportions. Provided distributions continue consistently every year with that nomination, the trust is excluded from the 30% minimum-tax regime.
Alternatively, affected trusts may access a special three-year Transitional Special Trust Rollover commencing 1 July 2027 to restructure out of the discretionary trust. The rollover is intended to permit ownership assets to move into another structure, for example a company or qualifying fixed trust (such as a unit trust) without an immediate federal income-tax consequence.
Case 1: The family trust owns one investment property
The situation
A discretionary family trust acquired an investment property more than ten years ago for $1 million.
Its market value is:
- $2 million on Federal Budget night;
- $2 million at 30 June 2027; and
- for simplicity, still $2 million when eventually sold after 1 July 2028.
The trust has no other assets or liabilities.
The trust therefore has a $1 million capital gain accrued before 1 July 2027. Subject to the usual requirements, that old gain retains access to the 50% CGT discount.
Our general approach: Consider the EET
Our starting point would generally be to examine the Excluded Election Trust (EET) route rather than physically transferring the property into another entity.
The reason is practical.
Although the new Special Trust Rollover may defer income-tax consequences of transferring the property into a fixed trust or company, it does not itself provide relief from State and Territory transfer duties. The Government has deliberately introduced the EET as an alternative that does not require an asset restructure.
For a valuable investment property property, avoiding a legal conveyance can be enormously important.
(NSW has also indicated that making the EET election itself should not trigger duty, although care would still be needed with any accompanying trust-deed amendments or other transactions.)
The principal cost is that the family must nominate beneficiaries and effectively lock income and capital distributions into agreed proportions.
For a family comfortable with those proportions that may be considerably less expensive than physically moving the property.
General direction: EET is likely to be the first alternative examined.
Case 2: The family trust owns only a share portfolio
The situation
A discretionary family trust owns a portfolio of listed shares worth $2 million.
The original cost was $1 million and the shares have been held for more than ten years.
Again, assume the portfolio is worth $2 million at 30 June 2027 and is ultimately realised for $2 million after 1 July 2028.
The trust therefore has a $1 million grandfathered pre-1 July 2027 gain.
Unlike the property in Case 1, the portfolio can generally be transferred without the substantial transfer-duty friction associated with directly held real estate, subject to exceptions such as landholder interests.
Our general approach: Investigate rollover into a fixed unit trust
Here we would be much more inclined to investigate a restructure.
A fixed unit trust could be more attractive than a company because a fixed trust is outside the proposed discretionary-trust minimum-tax regime and, unlike a company, remains within the trust CGT architecture.
The Special Trust Rollover expressly contemplates restructuring from a discretionary trust into a fixed trust.
However, there is presently a very important qualification.
We would not implement the rollover until satisfied that the trust’s pre-1 July 2027 deferred discount gain survives the rollover.
Under the Bill as currently drafted, there remains material uncertainty about whether a pre-1 July 2027 deferred gain will retain the full benefit of the existing 50% CGT discount after an asset is transferred under the special rollover.
The Tax Institute has specifically recommended that the legislation be amended to preserve the CGT discount on gains deferred before the transfer.
Accordingly, any proposed rollover involving assets with substantial grandfathered gains should be tested carefully before implementation.
This is particularly important because simply rolling the portfolio into a company could create an even more obvious problem: companies do not ordinarily receive the 50% CGT discount.
There would be little sense escaping the new trust minimum tax if doing so sacrificed a much more valuable grandfathered CGT concession.
General direction: investigate 100% rollover into a qualifying fixed unit trust, but only once preservation of the grandfathered deferred gain is established. Avoid assuming that rollover into a company is equivalent.
Case 3: The family trust owns property and shares
The situation
A discretionary family trust owns:
- an investment property representing approximately 50% of its assets; and
- a listed-share portfolio representing the other 50%.
Both contain substantial capital gains accrued before 1 July 2027.
This is probably one of the most common real-world situations.
At first glance, the obvious answer might appear to be:
- leave the property in the existing trust and make an EET election; and
- roll the shares into a fixed unit trust (using the Special Trust Rollover).
Unfortunately, the special transitional rules do not presently permit that simple combination.
The problem: The trust must choose
The special rollover is essentially an all-assets restructure into a single transferee. It is not designed to allow the trustee to select convenient assets and leave the others behind.
The EET and special rollover are mutually exclusive. A trust that chooses the rollover cannot then make the EET election.
Moving all of the assets into a fixed unit trust might therefore require transferring the real property as well as the shares, potentially bringing substantial State duty into the equation.
Our general approach: EET first, then investigate other rollovers
We would therefore generally begin with the EET route for the existing trust.
That leaves both the property and shares where they are and avoids forcing a transfer of the real estate merely to deal with the share portfolio.
We would then separately investigate whether another existing rollover or restructuring provision, outside the new special trust rollover, could potentially move the shares into a more suitable structure without preventing the trust from making the EET election.
Existing tax law already contains several rollover regimes and existing restructuring provisions may offer greater asset-by-asset flexibility than the new transitional rollover.
Whether any such rollover is actually available — and whether the grandfathered deferred gain follows the transferred asset — requires separate technical analysis.
General direction: preserve the property structure through the EET; then investigate whether another existing rollover can separately deal with the equities.
Case 4: The family trust owns the family business and its premises
The situation
A discretionary family trust has operated a successful family business for many years.
The trust owns:
- the operating business;
- valuable internally generated goodwill and other business CGT assets; and
- the commercial property from which the business operates.
Both the goodwill and the property contain substantial gains accrued before 1 July 2027.
This case is more complicated because transferring the business assets may be commercially achievable, while transferring the underlying real estate may attract substantial State duty.
Our general approach: Protect the property position first
Our starting point would again generally be to examine the EET.
That avoids forcing the commercial property into a new entity (and incurring State transfer duties) merely because the family wants to restructure the operating business.
We would then examine the operating assets separately.
Depending on the facts, there may be other possibilities, including:
- existing business-restructure rollovers, particularly the small-business restructure rollover in Subdivision 328-G;
- other CGT rollover provisions; and
- the Division 152 small-business CGT concessions.
These alternatives may permit the operating business or particular business assets to be dealt with separately from the commercial property, but each has its own eligibility requirements and potential consequences for the preserved pre-1 July 2027 CGT position.
Importantly, the enacted CGT transitional provisions contemplate the continuing operation of the small-business CGT concessions in relation to the deferred pre-1 July 2027 gain. (Section 112-170 specifically requires eligibility for those concessions to be tested by treating the deferred CGT event as occurring when the later realisation event occurs.)
So a valuable pre-2027 goodwill gain should not automatically be treated in the same way as passive investment property. The precise solution will depend heavily on whether the business satisfies the Division 152 tests at the relevant time.
General direction: EET to avoid an unnecessary property transfer, while separately examining existing business and CGT rollovers and small-business CGT concessions for the operating assets.
Case 5: The family business leases its premises from the family SMSF
The situation
The same successful family business is operated through a discretionary family trust, but this time the trust does not own the commercial property.
Instead, the premises are owned by the family’s SMSF and leased to the business on arm’s-length terms.
The discretionary trust therefore principally owns:
- business goodwill;
- plant and equipment;
- working capital;
- intellectual property and other operating assets.
The SMSF property is already outside the discretionary-trust regime.
Our general approach: Restructuring becomes considerably more feasible
This case is materially different from Case 4.
Because the commercial real estate does not have to be moved, one of the principal obstacles to using the special rollover disappears.
We would therefore compare two alternatives:
Option 1 — EET
Keep the business in the existing discretionary trust and make the required fixed beneficiary nomination.
This avoids restructuring altogether but permanently restricts future distribution flexibility.
Option 2 — restructure the entire business
Because the business assets can potentially be transferred without conveying the family real estate, the special rollover into a qualifying fixed trust — or potentially another appropriate structure — becomes much more attractive.
Again, however, preservation of the pre-1 July 2027 deferred CGT treatment, particularly the gain embedded in goodwill, must be established before the transaction proceeds.
The small-business restructure rollover in Subdivision 328-G Division and Division 152 small-business CGT concessions may also materially affect the analysis.
A company may be commercially attractive for an operating business, but any decision to move valuable pre-2027 goodwill into a company should be made only after determining precisely what happens to the deferred discount gain.
One additional issue may arise if the discretionary trust itself holds a valuable long-term leasehold interest rather than merely occupying under an ordinary commercial lease. A valuable lease is itself a CGT asset and may also raise State duty issues on assignment. That would need to be analysed separately.
General direction: unlike Case 4, both EET and a complete business restructure deserve serious consideration. The absence of directly held real estate makes rollover substantially more practical.
The recurring lesson
These examples reveal why there is unlikely to be one standard response to the new trust rules.
A useful preliminary decision framework is:
1. Identify the assets.
Property, shares, Goodwill and operating assets can produce quite different restructuring costs.
2. Quantify the pre-1 July 2027 embedded gain
The grandfathered 50% CGT discount may be worth considerably more than the tax saving achieved by escaping the new trust minimum tax. The value of the 50% CGT discount needs to be calculated for each CGT asset as at 1 July 2027
3. Protect the grandfathered gain before restructuring
A restructure should not be undertaken merely to avoid the 30% trust regime if it destroys or compromises a valuable 50% CGT discount.
4. Identify State tax friction.
The Commonwealth rollover deals with federal income tax. It does not automatically eliminate transfer duty or other State taxes. The cost of Sate Transfer Taxes also need to be quantified.
5. Compare EET with restructuring.
Where valuable real estate is held directly, EET may be particularly attractive. Where the trust principally owns transferable financial or business assets, restructuring may be considerably easier.
6. Look beyond the new rollover.
The special transitional rollover is deliberately restrictive. Existing CGT and business rollover provisions may sometimes provide greater flexibility.
And what about gains after 1 July 2027?
These case studies deliberately isolate gains accrued before 1 July 2027.
That will rarely be the whole story.
An asset sold in, say, 2032 may contain both:
- a grandfathered pre-1 July 2027 gain; and
- a substantial post-1 July 2027 gain.
The latter operates under the new CGT regime and should also engage the separate 30% minimum tax on real capital gains. (Treasury has acknowledged that further rules are required to deal with the interaction between the CGT minimum tax and the discretionary-trust minimum tax.)
In this article, we have articulated an important planning principle:
Do not use the new rollover merely to escape the 30% minimum trust tax if doing so risks sacrificing a valuable pre-1 July 2027 CGT discount.
However, that does not mean a rollover to a company should automatically be rejected.
A company structure may potentially be advantageous where the taxpayer expects substantial post-1 July 2027 capital growth, particularly if the long-term tax treatment of those future gains, retained earnings, succession arrangements and business operations produces a better overall outcome than maintaining the existing trust structure.
The correct comparison is therefore not simply “trust versus company tax rate”.
It is:
The value of the grandfathered pre-1 July 2027 CGT position versus the expected tax treatment of future income and future post-1 July 2027 gains under each available structure.
That comparison may produce very different answers for a mature investment property, a listed share portfolio, a rapidly growing private business or a family enterprise expected to compound substantially in value over coming decades.
So the article’s central planning message becomes:
Preserve what you already have, but model what you expect to build.
Accordingly, every eventual implementation will have to model both components of the gain.
That additional complexity does not presently alter the broad structural lessons illustrated above. It does, however, reinforce the importance of preserving flexibility while the legislative framework remains incomplete.
There is also a further practical consideration: political and legislative risk.
Australia’s next federal election is due before the commencement of the new minimum-tax regime, and the Federal Opposition has publicly committed to repealing the proposed 30% minimum tax on discretionary trusts and related CGT reforms if elected.
Importantly, the timing of the legislation allows taxpayers considerable scope to wait. The Special Trust Rollover window commences on 1 July 2027 and continues until 30 June 2030, while an EET election can only be made from the 2028–29 income year. On the presently expected electoral timetable, taxpayers should therefore know the outcome of the next federal election before being required to make an EET election.
Accordingly, families should distinguish between planning and implementation.
There is every reason to begin planning now: identify embedded pre-1 July 2027 gains, obtain appropriate valuations, review trust deeds, quantify State transfer duties, investigate available rollovers and model alternative structures.
There may, however, be considerably less reason to undertake an irreversible restructure solely in response to the proposed minimum-tax regime before the legislation is complete and the political position has become clearer.
A restructure may of course still be appropriate where it is independently justified by commercial, succession, asset-protection or other taxation considerations.
The emerging approach might therefore be summarised as:
Preserve what you already have. Model what you expect to build. Plan now, but do not surrender valuable optionality unnecessarily.
These examples are simplified illustrations of proposed legislation and are intended for general information only. This note has been published for general discussion purposes only and may contain errors. You should obtain legal and financial advice applicable to your specific circumstances. The discretionary-trust minimum-tax measures have not yet completed the legislative process, important interaction rules remain outstanding, and the appropriate treatment will depend on the terms of the relevant trust deed, the nature of its assets, beneficiary circumstances, State and Territory taxes and other applicable taxation provisions.
