Trust reforms: what we know and what happens next
Trust tax reforms announced in the Federal Budget could have significant implications for businesses, families and asset-holding structures. However, the final rules remain uncertain.
In his video update, Brian Wray encourages clients to understand the proposals before making any decisions.
The proposed trust tax reforms centre on a minimum 30% tax on certain income passing through trusts. Brian says the outcome could vary depending on who receives the income.
If a trust distributes to an individual, individuals can still be paying at 47% if they are on a higher marginal rate.
One of the bigger concerns is that if the trust distributes to a company, unlike imputation, a company doesn’t get a credit for the tax paid by the trust. This means when a company receives a distribution and when funds pass to an individual as a shareholder the combined effective tax rate can be around 63%.
Primary production income is proposed to be exempt from the minimum 30% tax, which is an important consideration for many Boyce clients.
Proposed transitional arrangements could allow businesses to move from a trust to a sole trader structure, fixed trust or company from 1 July 2027 to 30 June 2030.
There is also a proposed election allowing discretionary trusts to nominate fixed beneficiaries as a further exclusion.
Brian cautions against restructuring before the wider tax consequences are understood. You could be doing things now that can't be undone and the final law may be in a very different form.
Additionally, while the proposals address federal income tax and capital gains tax, state-based taxes remain a consideration.
“There’s no reference to whether there’s going to be any law changes for stamp duty purposes,” Brian said.
“Transferring assets out of trusts, before we even see final law, could trigger a lot of unintended consequences. It could result in assets and businesses being conducted out of structures which may prove not to be ideal.”
Boyce generally recommends avoiding restructuring solely in response to the proposal unless another circumstance, such as a new asset purchase, requires a decision now.
Despite questions about the future of trusts, Brian says they continue to offer value for businesses and families.
“We’re using trusts for good reasons. They provide flexibility with succession planning and mean that we can change control without actually having to change ownership of assets,” he said.
“Even if the laws do come in as currently proposed, trusts still serve a very valid purpose in business environments and for holding assets. Trusts are certainly not dead by any means.”
The proposed changes are currently expected to apply from 1 July 2028, allowing time to review the final legislation and assess options.
“We have a lot of time to deal with these things,” Brian said.
“Trusts still have a legitimate purpose, and working through it once we know the final law is really what we’re recommending at this stage.”
Contact your Boyce advisor to discuss your individual circumstances.
Boyce will continue to keep you informed of updates to trust tax reforms, and any other changes, as information becomes available.
Brian Wray is Executive Business Unit Leader of Boyce Tax Advisory Services and Business Advisory Services (Acting). He is a tax specialist who delivers sophisticated and practical tax strategies that help clients to meet their business and personal goals. With his extraordinary technical expertise, Brian assists with taxation policy design as a member of industry bodies and consultation groups.
