Part two of Nexia’s series on capital gains tax (CGT) changes and the proposed 30% minimum tax on discretionary trusts
One of the most common questions we are hearing from clients is:
“I’m buying a property or making a new investment. Should I use a trust or a company?”
For many years, the answer often followed a familiar pattern. Property and growth assets were typically acquired through discretionary trusts, while companies were used in more limited circumstances.
The CGT reforms, which apply from 1 July 2027, and the proposed 30% minimum tax on discretionary trusts, which would apply from 1 July 2028, have changed that conversation.
While trusts will remain attractive in many situations, there is no longer a universal answer. The most appropriate structure depends on the type of asset you are acquiring, whether you are seeking income or long-term capital growth, your family circumstances, succession objectives and how long you intend to hold the investment.
In short, the days of default structuring assumptions may be coming to an end.
Why the decision has become more complicated
Historically, many structuring decisions were influenced by the availability of the 50% CGT discount and the flexibility that discretionary trusts provided for distributing income and capital gains among family members.
Under the CGT reforms, some of those long-standing assumptions are being challenged.
This does not mean trusts are no longer effective. In many cases they will continue to provide significant advantages. However, the relative benefits of trusts and companies may change depending on the asset and the investor’s objectives.
As a result, choosing the right structure is increasingly becoming an exercise in modelling future outcomes rather than simply relying on historical precedent.
It’s not just about CGT
Although much of the current discussion is focused on the CGT changes and the proposed 30% minimum tax on discretionary trusts, tax should not be the only consideration when selecting a structure.
Other important factors may include:
- Asset protection
- Estate and succession planning
- Flexibility to distribute income between family members
- Ability to retain profits for future investment
- State taxes and government charges
- Borrowing capacity and financing requirements
- Access to losses and deductions
- Administrative complexity
- Long-term exit strategies
- Future political uncertainty
The most tax-effective structure over the next five years may not necessarily be the most effective structure over the next twenty.
Trusts may still be attractive for long-term growth assets
For business owners, investors and family groups focused on wealth accumulation, trusts will often remain an attractive option.
Trusts can provide significant flexibility when family circumstances change. They can assist with succession planning, facilitate intergenerational wealth transfer and allow investment income and gains to be distributed in a manner that aligns with a family’s broader objectives.
For assets expected to generate substantial long-term capital growth, these benefits may continue to outweigh the complexity of a trust structure.
However, a trust should not be selected simply because it has traditionally been viewed as the preferred vehicle. The proposed reforms make it important to revisit whether those historical benefits remain relevant to your specific circumstances.
Companies may deserve a second look
Companies have often been overlooked for investment assets because other structures were generally considered more tax-effective under the previous rules.
The reforms may change that assessment in some cases.
Companies may become more attractive where:
- Income is intended to be retained and reinvested for extended periods
- The investment has a stronger income focus than a capital growth focus
- Ownership is expected to remain stable
- There is less need for distribution flexibility
- Simplicity and administrative certainty are priorities
This does not mean companies will be the right answer for everyone. Rather, it means they should now form part of the conversation rather than being automatically excluded.
Buying a new asset is different from restructuring an existing one
Another important distinction is that acquiring a new investment is a completely different question to reviewing an asset you already own.
We are increasingly hearing questions such as:
“If companies are becoming more attractive, should I move my property out of my trust?”
The answer is not necessarily.
Transferring an existing asset from one structure to another often triggers significant costs, including:
- Capital gains tax
- Stamp duty
- Legal and transaction costs
- Potential financing and banking complications
In many cases, simply moving an asset may create more cost than benefit.
There may be alternative strategies available that achieve similar objectives without triggering the significant tax and duty consequences associated with a transfer.
This is why existing structures should be reviewed carefully before any action is taken.
The era of one-size-fits-all structuring is over
The new CGT reforms and the proposed 30% minimum tax on trustees do not make trusts obsolete, nor do they suddenly make companies superior.
What they do highlight is the importance of informed, forward-looking planning.
The right structure for a new property, business acquisition or investment portfolio will increasingly depend on careful modelling of future outcomes, rather than assumptions based on historical rules.
The decision made today could influence wealth creation, taxation outcomes and succession opportunities for decades to come.
For further information, read our related article, “Generational capital gains tax (CGT) reform in Australia: Key tax planning opportunities before 1 July 2027”.
The hidden cost of getting the structure wrong
One of the risks in focusing solely on CGT outcomes or the proposed 30% minimum tax on trustees is overlooking the ongoing costs associated with different ownership structures.
A good example is land tax.
Over a ten, fifteen or twenty-year investment horizon, if land tax is payable, that annual difference can become significant.
This does not necessarily mean a company is better than a trust. The flexibility, asset protection and succession planning benefits of a trust may still outweigh the additional costs. However, it demonstrates why structuring decisions can no longer be made on a single issue alone.
The best structure is often determined by looking at the entire picture rather than focusing on one tax outcome.
How Nexia can help
If you are planning to acquire property, invest surplus business cash or purchase a new asset, now is the ideal time to review whether your intended structure remains appropriate under the new CGT changes and the proposed 30% minimum tax on discretionary trusts.
The earlier planning begins, the more options are usually available.
Speak with your local Nexia Advisor to review your proposed structure and understand the options available for your circumstances and investment objectives.
Important: This article is based on legislation and draft rules as proposed at the time of writing. Future government policy, legislation and the outcome of the next Federal Election may result in changes. The information provided is general in nature and should not be relied upon as a substitute for professional advice. Please seek advice tailored to your individual circumstances.
