Does Your Family Business Operate Through a Trust? Review It Now — But Don’t Rush to Restructure
Written by: Melissa Cunliffe (CA)
If your family business operates through a discretionary trust, should you restructure before the proposed 30% minimum tax starts? Possibly — but certainly not without reviewing the whole picture first.
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The Australian Government has proposed a 30% minimum tax on the taxable income of discretionary trusts from 1 July 2028, subject to exclusions and final design rules.
To help businesses that may choose to move out of discretionary trusts, the Government has also proposed expanded rollover relief for three years from 1 July 2027.
That sounds straightforward. It isn’t.
A business structure is not simply a tax rate. And a federal income-tax rollover does not necessarily mean a restructure is free from every other tax, duty, legal or commercial consequence.
Why Is Your Family Business Structure Under Review?
Discretionary trusts have been widely used by Australian families for decades. Depending on the circumstances, they can provide flexibility in distributing income, asset-protection advantages, succession-planning flexibility and legitimate tax-planning opportunities.
The Government’s proposed reform is intended to reduce opportunities for inappropriate income splitting by introducing a minimum tax rate of 30% at the trustee level.
Treasury has indicated that more than 90% of Australia’s active small businesses are not expected to be affected in any given year, while primary production income and certain other trust arrangements are proposed to be excluded.
Industry groups have nevertheless raised concerns about the breadth of the proposal, its impact on genuine family businesses and farmers, and the cost and complexity involved in restructuring.
flexibility in distributing income
asset-protection advantages
succession-planning flexibility
separation of business and family assets
intergenerational ownership flexibility
legitimate tax-planning opportunities
The danger of looking only at the 30% tax rate
Imagine a family business has traded through a discretionary trust for 20 years. The trust owns the operating business, valuable goodwill, commercial property, plant and equipment and investments accumulated over time.
The owners hear: ‘Discretionary trusts will be taxed at 30%.’ Their immediate reaction is: ‘We need to move everything into a company.’
But a restructure that appears attractive when looking at one tax rate can look very different once all relevant consequences are included.
What happens to the commercial property?
Could stamp duty apply?
What happens to existing bank finance and guarantees?
What happens to contracts and licences?
Could GST consequences arise?
What happens to accumulated trust assets and asset protection?
How will profits eventually be extracted from the new company?
What are the Division 7A consequences?
What happens on retirement, succession or eventual sale?
Federal rollover relief does not necessarily mean ‘no tax cost’
The Government has proposed expanded federal rollover relief for three years from 1 July 2027 to assist businesses and others who choose to restructure out of discretionary trusts.
That may significantly reduce certain federal income-tax consequences. But businesses need to be very careful with the word ‘rollover’. It does not automatically mean: ‘We can move everything without cost.’
State taxes operate separately. In Victoria, transfers of land and other dutiable property can trigger land transfer duty where there is a transfer or change in beneficial ownership. Victorian concessions and exemptions are highly fact-specific and must be tested before any transaction occurs.
A restructure may therefore receive federal tax relief while still creating a material Victorian duty consequence. That alone could completely change whether restructuring makes commercial sense.
A simple example
Assume a family business trades through a discretionary trust. The trust also owns commercial property worth $2 million.
After reviewing the proposed minimum trust tax, the family considers transferring both the business and property into a company. At first glance, expanded federal rollover relief may appear to solve the CGT problem.
But transferring the property could potentially raise a separate Victorian duty issue depending on exactly how the restructure is undertaken and whether any exemption applies.
refinancing costs
legal costs
valuation costs
ASIC and establishment costs
new security arrangements
changes to leases
accounting-system changes
ongoing company-tax and Division 7A consequences
The structure might already be doing more than you realise
Another danger of rushing is forgetting why the trust exists in the first place. Many family-business structures have evolved over decades.
Moving everything into one company purely because the headline company tax rate looks attractive may undo protections that were deliberately built into the group.
Tax is important. But tax is only one part of structure design.
separate valuable assets from trading risk
allow children to enter the business gradually
provide succession flexibility
hold property independently of the trading entity
manage family wealth
protect assets from future business risks
coordinate with wills and estate-planning arrangements
This is where the 3P’s Future Prosperity Model matters
At 3P’s Future Accounting, we believe every major restructure should be considered through three lenses.
PRESERVE
How do we preserve what the family has already built?
accumulated wealth
commercial property
investments
retained profits
succession
estate planning
retirement
intergenerational ownership
The family may have spent 20 or 30 years building these assets. Any restructure should protect that wealth rather than simply chase a short-term tax outcome.
PROTECT
What does the restructure do to risk?
Which entity operates the business?
Which entity owns valuable assets?
Are property and equipment exposed to trading risk?
What personal guarantees exist?
What happens if the business fails?
Does the restructure improve or weaken asset protection?
A tax saving that exposes millions of dollars of family wealth to unnecessary risk may not be a saving at all.
PROSPER
Which structure best supports the next chapter?
growth
borrowing
acquisitions
employing family
bringing children into ownership
bringing in outside investors
buying property
selling the business
eventual retirement and wealth extraction
The right structure should support where the business is going — not simply minimise this year’s tax bill.
So, what should businesses do now?
The answer is not to ignore the proposed reform. And it is not to rush. The answer is to review.
Map the existing structure — identify every trust, company, partnership, property, business, investment, loan and ownership relationship.
Identify which income may be affected — do not assume every trust will automatically pay the new minimum tax.
Model the ‘do nothing’ position — quantify the likely outcome if the current structure remains unchanged.
Model alternative structures — company, separate asset-holding entities, fixed or unit trusts, partnerships, retained discretionary trusts or hybrid structures may all be relevant depending on facts.
Calculate all tax consequences — income tax, CGT, GST, Division 7A, small-business CGT concessions, franking credits, payroll tax and land tax.
Calculate state duty — particularly where the group owns land or other dutiable assets. This must be reviewed before transactions occur.
Review finance — changing borrowers or asset ownership may require refinancing, new valuations, guarantees and security arrangements.
Review legal consequences — contracts, employment arrangements, licences, leases and commercial agreements may need attention.
Review succession and estate planning — if the structure changes, wills and estate-planning documents may need to change with it.
Compare the long-term outcome — do nothing versus restructure over five years, ten years, potential sale, retirement and succession.
The worst possible approach
The worst outcome would be for family businesses to hear ‘30% trust tax’, panic, move assets, trigger unnecessary duty or transaction costs, lose asset-protection advantages, create new Division 7A issues — and then discover that the original trust either would not have been materially affected or that another restructuring path would have been better.
There is time. Use it properly.
The proposed minimum tax does not commence until 1 July 2028. The expanded rollover period is proposed to begin from 1 July 2027. Important implementation detail is still being developed.
The 3P’s view
At 3P’s Future Accounting, we absolutely believe affected family groups should start reviewing their structures now. But reviewing and restructuring are two very different things.
A good restructure is not about finding the structure with the lowest headline tax rate. It is about finding the structure that gives the family the strongest overall long-term position.
Preserve what you have built. Protect what you have. Prosper into the future.
Review now. Understand your options. Restructure only when the numbers and the bigger picture support it. Book your structure review today.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
