Family Trust Reform: Key Changes in the Federal Budget for Estate & Tax Planning

Three significant changes from this week’s Federal Budget will affect how Australians hold and transfer wealth. Here’s what you need to know.

CGT Discount

From 1 July 2027, the 50% CGT discount will be replaced by an inflation-based (CPI-indexed) discount. The cost base will be indexed by CPI, so tax will apply only to the inflation-adjusted gain — not the full nominal gain.

Existing assets are grandfathered to that date, meaning:

• Assets sold before 1 July 2027 retain the full 50% discount.
• Assets sold after 1 July 2027 retain the 50% discount on gains accrued up to that date, but gains accruing after 1 July 2027 will be taxed at a minimum of 30% (subject to CPI indexation).
• Pre-CGT assets (acquired before 20 September 1985) sold after 1 July 2027 will have no tax on pre-2027 gains. Post-2027 gains will be taxed on an indexed cost base as at 1 July 2027 — making a valuation at or around that date strongly advisable.

Notably, there are no changes to the main residence exemption or the four small business CGT concessions.

Practically, expect a significant volume of asset sales and property revaluations as the 2027 transition date approaches.

Negative Gearing

Negative gearing on residential investment properties is abolished for properties acquired after Budget night, with one exception: new builds remain eligible.

Existing investment properties are fully grandfathered.

In short: if you are considering purchasing an established investment property, the ability to offset financial losses against your income is no longer available.

Family Discretionary Trusts

From 1 July 2028, a minimum 30% tax will apply to family discretionary trust (FDT) income, payable by the trustee — modelled on the company franking system.

Key points:

• Beneficiaries in tax brackets below 30% will not receive a refund of the trust-level tax paid.
• Beneficiaries in the 30–45% bracket will receive a credit, reducing further tax payable.
• Testamentary trusts, deceased estate trusts, fixed trusts, super funds, charitable trusts, primary production income, and income for vulnerable young people are exempt.
• The changes deliberately target the use of corporate beneficiaries as a tax planning mechanism. There are no tax credits available to corporate shareholders for tax paid by the trust – they must pay tax on any distribution at their corporate rate.

Other key points

• Testamentary trusts, fixed trusts, super funds, charitable trusts, primary production income, and income for vulnerable young people are exempt.
• Rollover relief will be available for restructures (e.g. converting a family trust to a fixed trust) – but get advice before making any changes to ensure you are eligible.

FDTs may still offer utility for income streaming within families in the 30–45% bracket, though the economics of maintaining one — particularly where corporate beneficiaries have been used — will need to be carefully reassessed.

For clients currently holding significant assets in family discretionary trusts, the interaction of these changes warrants prompt and careful review.

These are complex changes with significant estate planning implications. If you would like to understand how they apply to your circumstances, feel free to reach out to our Estates and Estate Planning team here: https://ballawyers.com.au/personal/wills-estates/.