If your news feed has been full of headlines about the government coming after trusts, you’re not alone in wondering whether it’s time to panic. The trust tax changes being discussed in 2026 Australia wide are worth understanding properly, and once you do, the short answer is no, don’t panic. Understanding the detail could save you a very expensive mistake.
Discretionary trusts have quietly done the heavy lifting for Australian business owners and investors for generations. Lately, that’s been drowned out by noise about a proposed tax change, and plenty of people are being told to rush their assets into a company before it’s “too late.” Before you touch anything, it’s worth understanding what’s actually being proposed, what it means for you, and why we’re still recommending discretionary trusts to clients today.
Quick Summary
- The trust tax talk comes from a May 2026 federal budget proposal. It isn’t law, and it’s still going through consultation.
- Even in its current form, it wouldn’t take effect until 1 July 2028, and a federal election falls before that date.
- A discretionary trust still receives the capital gains tax (CGT) discount. Companies have never had access to it, and that isn’t changing.
- Company profits face tax twice: once inside the company, and again as “top-up tax” when the money is finally paid out to you.
- A discretionary trust also offers asset protection and far more flexibility around succession and family estate planning.
- As a general guide for our small business clients, a healthy structure often lands around 60% trust, 30% bucket company, 10% super.
- The key message: don’t dismantle a structure that’s working for you off the back of a headline. Get advice for your specific situation.
🎥 Want the full walkthrough, including real numbers and client stories? Watch the video here.
The trust tax changes explained (and why it’s not worth panicking over)
The reform being discussed is a budget announcement, not legislation. It’s currently out for public consultation, which means the detail can, and likely will, shift before anything is finalised. If it does eventually pass, the earliest it would start is the 2028 to 2029 financial year. Between now and then sits a federal election, and the change is already a live political issue, with opposition to scrapping it building.
Discretionary trusts have operated in Australia for well over a century without being taxed this way. Given how much can move between a proposal and an actual law, tearing up a structure that’s currently working for you is premature, and potentially very costly.
Discretionary trusts still hold the tax advantage companies don’t
The clearest reason a discretionary trust remains worth using: when you sell a growth asset you’ve held for more than 12 months, the trust still gets the CGT discount. A company never has, and under the proposed changes, still won’t.
It’s true the discount itself is being reworked. From mid-2027, trusts move from a flat 50% reduction to a calculation based on inflation. But even a reduced discount beats a company’s flat zero. The advantage narrows slightly; it doesn’t disappear.
To put it in perspective, take an asset bought for $100,000 and sold later for $200,000, a $100,000 gain:
- Held in a trust: only half of that gain is taxable, bringing the tax bill to roughly $23,000 to $25,000 at the top marginal rate.
- Held in a company: the full $100,000 is taxed at 30%, a $30,000 bill, and that’s before a cent has actually reached your pocket.
(Figures are illustrative, based on tax rules current at the point of publication, and will shift as legislation, thresholds and personal circumstances change.)
The hidden cost of a company: getting the money back out
A company is efficient at one thing: letting profit accumulate at a flat 30% tax rate. The catch is extracting it later. Money paid out of a company comes to you as a dividend, which is taxed again in your hands:
- Fully franked dividend: an additional 10 to 15% tax on top of what the company has already paid.
- Unfranked dividend: as much as 40 to 45% total tax once it’s in your hands.
(Rates current at the point of publication; exact outcomes depend on your personal tax position and franking credits available at the time.)
Short of winding the entire company up, there’s no clean way around this. And winding up isn’t realistic once there are multiple assets or investments sitting inside it.
We’ve seen this cost a client dearly. A property developer left a project inside a company, planning to sell it, a sound call at the time. Years later, circumstances changed and he decided to hold the property instead. By the time it eventually sold, the structure it sat in hadn’t changed with the plan. In a trust, the tax bill would have landed around $2,000. Inside the company, it came to roughly $40,000. Same property, same sale, the only difference was which structure it was parked in, and that decision had effectively already been locked in years earlier.
Why flexibility matters more than people realise
Life doesn’t stick to a plan. A business gets sold, a partnership ends, personal circumstances change, health issues arise. Somewhere in the next five, ten or fifteen years, most business owners will hit a moment where they need to move money, often faster than they expected.
Keeping wealth inside a discretionary trust preserves that flexibility. When the right moment arrives, funds can be moved and still pick up the CGT discount on everything that’s grown up to that point. A company doesn’t offer that same timing advantage.
One example: a client’s $5 million share portfolio sat inside her family trust from 2016, deliberately kept out of her bucket company until there was a genuine reason to move it. A decade later, a change in personal circumstances created exactly that reason. By then, the portfolio had doubled to $10 million, and because it had remained in the trust the entire time, the full CGT discount applied to a decade of growth. Moving it earlier, straight into the company, would have cost somewhere between $800,000 and $1 million more in tax. (This reflects one client’s actual circumstances at the time; outcomes vary based on individual assets, timing and tax position.)
Every situation is different, and what worked for that client won’t necessarily suit yours. That’s exactly why this decision needs advice tailored to your own numbers, not a one-size-fits-all rule from the internet.
Beyond tax: protection and succession
Two further reasons a discretionary trust continues to earn its place have nothing to do with the sale of an asset:
- Asset protection. With a corporate trustee in place, a trust offers the same separation from personal liability you’d expect from any company structure.
- Succession planning. Control of a trust can be handed to the next generation once they’re ready, typically somewhere in their mid-to-late 30s, effectively transferring part of an estate cleanly, while assets keep growing tax-effectively. Companies don’t offer that same flexibility, nor the CGT discount along the way.
- Flexible income distribution. A trust lets you direct income to family members on lower tax rates each year. That benefit has been narrowed by tightening rules over time, but it still has real value.
Where a company genuinely is the better choice
To be fair, there’s a case where pushing everything into a company does make sense: if the plan is to build up assets and eventually sell the entire structure in one complete exit. In that scenario, the company can be wound up, the full CGT discount still applies, and the extraction problem never arises.
In practice, though, most business owners don’t sell everything at once. They sell one asset at a time as circumstances arise. That’s precisely where a company’s structure works against you.
A workable structure for most growing businesses
For the majority of clients we work with, the combination that performs best is a trading company running day-to-day operations, with the value and growth of that business held through shares owned by a family trust. The company handles operations; the discretionary trust holds and builds the underlying value.
As a rough benchmark, a well-structured small business often lands somewhere around:
- 60% of wealth in trusts
- 30% in a bucket company
- 10% in superannuation
The point isn’t that a discretionary trust always beats a company. It’s that the right answer depends on your circumstances, your assets, and your plans. Right now, with tax reform still years from certainty, discretionary trusts continue to serve most business owners well.
🎥 For the full breakdown with real client numbers, watch the video here:
FAQs
What are the trust tax changes 2026 Australia is proposing? A proposal from the May 2026 federal budget would change how trusts are taxed, but it isn’t law yet and remains under consultation.
Are discretionary trusts being banned in Australia? No. Discretionary trusts are still fully legal and widely used.
When would any new trust tax rules take effect? At the earliest, 1 July 2028, with a federal election in between and active political opposition to the proposal.
Do companies receive the capital gains tax discount? No. Companies have never received it, and that isn’t set to change. A discretionary trust (like an individual) still receives a discount, though it’s shifting from a flat 50% to an inflation-based calculation from mid-2027.
What is “top-up tax” on a company? It’s the additional tax paid when profit is extracted from a company as a dividend, on top of the 30% company tax already paid, potentially another 10 to 45% depending on franking.
Should I move assets out of my trust and into a company now? Not without advice tailored to your situation. For most business owners, a discretionary trust still delivers better tax, protection and flexibility outcomes. Companies tend to suit assets that have finished growing, or a single, complete exit strategy.
What’s a sensible split between a trust, a company and super? As a general guide, we often see well-structured small businesses sitting around 60% trust, 30% bucket company, 10% super, though the right mix depends entirely on individual goals.
Is it still worth setting up a family trust in 2026? For most growing businesses, yes. A common approach pairs a trading company with a discretionary trust holding the shares, combining the tax and flexibility benefits of both.
A note on the figures and dates in this article: all figures, tax rates and thresholds are current at the point of publication and are subject to change through consultation, future legislation and the 2028 federal election. This article is general information only and doesn’t take your personal circumstances into account. Always get advice specific to your situation before acting.
Don’t guess with your structure
Every business is different, and a headline can’t tell you what’s right for yours. If you’re unsure whether your current setup is doing what it should, or what all this trust talk actually means for you, that’s exactly the conversation we have with clients every day.
Contact Us and let’s take a straight-talking look at your structure.
