The trust vs company question is back on the table in 2026 for a lot of Australian business owners. If your business runs through a family trust, the structure you were advised to set up ten or twenty years ago could start costing you more tax than a company would. Under the minimum tax proposed in the 12 May Budget, some trust profits could end up taxed at up to 60%.
Our view: for a lot of trading businesses, the trust is no longer the automatic answer. It’s not panic time, but it is modelling time. The CGT changes are already law, the trust minimum tax is still a proposal, and the restructure window opens on 1 July 2027.
In Episode 29 of Business Uncut, Reuben walks through what’s changing, a five-step framework for deciding whether to restructure, the three traps to avoid and one job to do this week.
Key takeaways
- For a lot of trading businesses, the discretionary trust is no longer the automatic answer. It’s modelling time, not panic time.
- Under the proposed minimum tax, the trustee would pay at least 30% on trust income from 1 July 2028. It’s a proposal, not law.
- Compare a trust and a company by what you keep after money comes out, not just the headline rate.
- Rollover relief runs from 1 July 2027 to 30 June 2030, but duty and GST can still decide whether a restructure stacks up.
Why the family trust became the default
For about 20 years, the default advice for a growing business was a discretionary trust. That’s a trust where the trustee decides each year which family members receive the profit.
Flexibility was the whole selling point. You could stream income to whoever paid the least tax, and you got the 50% CGT discount when you sold. CGT is capital gains tax, the tax on your profit when you sell an asset. Both of those advantages are now under pressure.
The CGT change from 1 July 2027 is already law
From 1 July 2027, the 50% CGT discount is replaced with indexation for individuals, trusts and partnerships. Indexation means the cost of the asset is lifted for inflation before the gain is worked out.
There’s also a 30% minimum tax on gains. The good news is that the small business CGT concessions stay. We cover the detail in our breakdown of the CGT changes from 1 July 2027.
The proposed 30% minimum tax on trusts
The bigger change is still only a proposal from the 12 May Budget, not law. From 1 July 2028, the trustee would pay at least 30% on the trust’s income.
Individual beneficiaries would get a non-refundable offset. That means they get credit for the tax already paid, but if their own rate is lower, they don’t get the difference back. Company beneficiaries would get no offset at all. Our guide to what the proposed 30% minimum means for family trusts covers the proposal in more depth.
Hypothetical: a construction business with a bucket company
Say, hypothetically, you run a construction business through a family trust. Each year some profit goes to your partner, some to a uni-age child, and the rest to a bucket company. That’s a company set up to receive trust distributions and cap the tax.
Hypothetical example
That’s the structure that was meant to save you tax. The minimum tax is a proposal, not law yet.
Under the proposal, the child’s low tax rate stops helping, because the 30% has already been paid. And the bucket company slice? The combined tax on it could land between 55% and 60%. That’s the structure that was meant to save you tax.
Step 1 Check whether you’re in the firing line
The proposal targets discretionary trusts. If your business already sits in a company, or in a fixed unit trust where everyone’s share is set in advance, this one is mostly not your problem. Plenty of owners worry about rules that don’t touch them.
But the draft has no small business carve-out and no carve-out for big wage bills. A trading trust with, hypothetically, 40 staff is in, just the same. The principle: know your structure before you worry about it.
Step 2 Run the numbers on a company
A company that’s a base rate entity pays 25% tax. A base rate entity is basically a company with turnover under $50 million, where no more than 80% of its income is passive income such as rent or interest.
Hypothetically, say your business makes $1 million in profit. In a trust under the proposal, the trustee pays at least $300,000. In a qualifying trading company, the tax is $250,000. If you’re keeping profit in the business to fund growth, that gap is genuine cash flow, every year.
That said, when you take money out as dividends, you pay top-up tax personally. And Division 7A, the rules that treat money you take from your company as a loan or a dividend, will bite if you’re sloppy. The principle: compare what you keep after money comes out, not just the headline rate.
Compare what you keep after money comes out, not just the headline rate.
Step 3 Look at the excluded election trust
The excluded election trust (EET) is a once-only election in the 2028-29 year. You lock in fixed percentages for each beneficiary, and they can only change on death or relationship breakdown.
It’s designed as the alternative to the minimum tax, so it might let you keep your trust. But you give up the very flexibility you set the trust up for, and if you revoke the election, you could pay tax on all the income at the top rate. It’s a bit like marrying your trust deed. The principle: only lock it in if your family split genuinely won’t change.
Step 4 Map what you’d be moving
Rollover relief lets you shift assets without triggering capital gains tax. It runs from 1 July 2027 to 30 June 2030. But generally, all the relevant assets have to go to one recipient.
So if you were hoping to put the business in one company and the building somewhere else, that might not work. The principle: list every asset the trust owns before you design anything.
Step 5 Price the leakage
The rollover gives you no duty relief and no GST relief. In Queensland, moving property or business assets can trigger transfer duty, the state tax on transferring property, unless a state concession applies.
Hypothetically, a medical practice that owns its building could find the duty bill is the deciding number. The principle: the tax saving has to beat the cost of getting there.
Model now, decide once the detail is settled
The exposure draft, the first draft of the law released for comment, is out. Consultation closed on 18 September, and how the proposal interacts with the CGT changes still hasn’t been released. So model now, and decide once the detail is settled.
Three traps to avoid
- Acting before it’s law. It’s a proposal. The detail could change, and a restructure is expensive to undo.
- Waiting until the last minute. 2030 sounds a long way off, but valuations, bank consents, leases and finance take months, not weeks.
- Treating it as a tax decision only. A company changes how you pay yourself, how you protect your assets and how you’d eventually sell. Your accountant, your lawyer and your banker all need to be in the room, or at least on the same email chain.
Your one action this week
This week
Grab your last two years of trust distribution minutes, the paperwork showing who received the profit each year. Write down who received what, and roughly how much.
That one page tells you, and your adviser, how hard the proposal could hit you. It takes 20 minutes, tops.
Frequently asked questions
Should I change my family trust to a company?
Not automatically. The trust is no longer the automatic answer for a lot of trading businesses, but the minimum tax is still a proposal. Model a company against your trust now, compare what you keep after money comes out, and decide once the detail is settled.
Is the 30% minimum tax on trusts law yet?
No. It’s a proposal from the 12 May Budget that would apply from 1 July 2028. The exposure draft is out and consultation closed on 18 September, but how it interacts with the CGT changes still hasn’t been released.
Does the trust minimum tax apply to unit trusts?
The proposal targets discretionary trusts. If your business sits in a fixed unit trust, where everyone’s share is set in advance, or already sits in a company, it’s mostly not your problem. The draft has no small business carve-out and no carve-out for big wage bills.
What is an excluded election trust?
It’s a once-only election in the 2028-29 year, designed as the alternative to the minimum tax. You lock in fixed percentages for each beneficiary, which can only change on death or relationship breakdown. If you later revoke it, you could pay tax on all the income at the top rate.
Keep reading
Want help running the numbers?
We’ll look at your structure, model the options side by side, and tell you straight whether moving’s worth it.
General information only, not personal tax, legal or financial advice. Figures are hypothetical examples. Talk to your adviser about your own situation.
