What the budget means for your farm business
The Federal Budget delivers the largest tax reform package since the goods and services tax (GST) arrived in 2000, and its two biggest changes for farm businesses fall directly on trusts and capital gains tax (CGT).
Brian Wray, Executive Business Unit Leader of Boyce Tax Advisory Services, joined Jack Cresswell on the Farms Advice Podcast to explain the proposed changes. Agriculture was not the focus of the budget, he said, but the impact on farmers could still be significant.
"This is the biggest tax reform package since the GST came in in 2000," Brian said. "There is no doubt that tax will be the biggest impact on farmers from this budget."
His main message, however, was a measured one. Most of the proposed changes are not yet law, and the priority for farmers should be to make good business decisions first, treating tax as part of that decision rather than the factor that drives it.
From 1 July 2028, the budget proposes a minimum 30% tax at the trust level. If that income is then distributed to a company, the company receives no credit for the tax already paid. Brian explained how, without relief, that layering can lift the effective tax rate on some income to around 51%, and higher again once a franked dividend is paid out.
"Effectively you can be paying 62.9% on that dollar of income," he said.
Two factors provide reassurance. A carve-out is expected for genuine primary production income, which means a trust earning only farm income may see no change. The measures are also proposals, with at least two years before they would take effect, so there is time to understand the detail before acting. As Brian noted, "trusts are almost a cornerstone of most primary production investment structures," and that position is unlikely to shift significantly under the proposed changes.
The budget also proposes removing the 50% general CGT discount from 1 July 2027. The important detail is that only gains accruing after that date are affected.
"You can still get the benefit up to that point in time, even if it's sold 10 years afterwards," Brian said. There is therefore no need to bring forward a sale before 30 June 2027 to preserve the discount already accrued.
There are no changes to the small business CGT concessions, including the 15-year exemption that can reduce tax to nil on assets held long enough. Brian noted that the thresholds, $6 million in assets or $2 million in turnover, have changed little in about 20 years, while land values have risen substantially.
"The general discount being removed potentially makes these concessions even more valuable," he said.
Trusts remain a strong option where you require the flexibility to pass control to the next generation without triggering a tax liability. With asset protection now a growing priority for many families, Brian also explained why partnerships are becoming less common, and why more assets are being held in companies, particularly where borrowing is involved.
"What we've got to keep in mind is our primary goals and what we're trying to achieve with our structuring," he said.
"If we do want that flexibility to transfer control during life, that's where with a trust you'll have an absolute advantage.
"Trusts still have a great use and they're not dead going forward," Brian said. "They're probably just not quite as attractive as they were."
A consistent theme throughout the conversation was patience. The measures are proposals, the detail is still to come.
"If your structures are appropriate for your circumstances today, there's no need to change your structure today," Brian said.
It is, however, a timely opportunity to review whether your current structure still aligns with your long-term goals.
🎧 Listen to the full episode on the Farms Advice podcast.
This article is general in nature and refers to proposed measures that are not yet law. It is not financial, taxation or legal advice. Please get in touch with your Boyce advisor to discuss your own situation.
