Federal Budget 2026 – What This Means for Small Business and Family Groups

Two weeks on from the 2026 Federal Budget, we have been working through the proposed changes which, if legislated in their current form, will have a profound impact on middle-income, asset-holding small business families.

While the Budget introduced a number of significant tax reforms — all of which require careful consideration — the matters outlined below are those that currently warrant the most immediate attention, planning and discussion for our clients.

The reforms are complex. The interaction between the proposed 30% minimum trust tax and the capital gains tax (CGT) changes is already creating scenarios that are not yet fully understood. In addition, the proposed restructuring window introduces important long-term decisions — including whether assets should be held in a company, fixed trust, or personally.

Below, we outline the key areas that we believe require the most immediate focus.

Proposed 30% Minimum Tax on Family Trusts

From 1 July 2028 (subject to legislation), discretionary trusts will be subject to a minimum tax rate of 30%, regardless of who the income is distributed to.

How the new rules would operate

• The trust pays 30% tax upfront on its income
• Beneficiaries still declare the income in their tax returns
• However, they receive only a non-refundable credit for the tax paid

Where a beneficiary’s marginal tax rate is below 30%, the excess tax is permanently lost.

Outcome:
The long-standing benefit of distributing income to lower-income family members is largely removed.

Why this matters

For many family groups, discretionary trusts provide modest annual tax savings through income splitting.

These savings are typically in the range of $5,000 to $12,000 per annum

Under the proposed rules, these savings are significantly reduced or eliminated.

The “$200,000 break-even” concept

Commentary has referred to a “break-even” point of approximately $200,000.  This is not a legislative threshold, but a practical observation.  At this level, many family groups are already paying tax close to 30%, and as a result, the new rules may have limited additional impact.  However, for structures relying on distributions to lower-income beneficiaries the tax advantage is removed entirely.  This is where the most significant increases in tax arise.

Example – current vs proposed outcome

Scenario:

Trust income: $200,000

Distributions to:

• Business owner (high income)
• Spouse (low income)
• Adult child (low income)

Current rules

• Income split across family members
• Lower marginal tax rates apply
  Total tax ≈ $63,000

Proposed rules

• Trust pays 30% upfront = $60,000
• No refund of excess tax to low-income beneficiaries
  Total tax ≈ $75,000

Outcome

• Increase in tax of approximately $10,000–$15,000.  This is driven by the loss of income splitting benefits

Impact on “Bucket Company” structures

The proposed rules also significantly impact corporate beneficiaries.

• The company does not receive a credit for the 30% tax paid by the trust
• This creates double taxation

Indicatively:

• Minimum effective tax rate ≈ 51%
• Depending on final profit extraction, this may increase to 63% when paid out to the ultimate shareholders

This is a fundamental shift from the current use of bucket company strategies.

The restructuring problem – not everyone can exit

The Government has proposed a three-year rollover relief period (from 1 July 2027) to allow restructuring out of discretionary trusts without triggering Capital Gains tax.

While helpful in principle, there are practical limitations:

• Stamp duty is generally not covered
• Land-rich trusts may face significant transfer costs
• Many clients will find restructuring difficult or uneconomic

Our recommendation

There is already significant pushback from professional bodies, including CPA Australia, along with broader concern across accounting firms and business groups.

The Government has confirmed that key aspects of the rules will be subject to consultation and Industry bodies are actively preparing submissions.

As a result, it is highly likely the final rules will evolve before legislation is enacted.

At this stage:

• Do not rush into structural changes
• Begin reviewing your current position
• Understand your reliance on income splitting
• Seek our advice before making decisions

We will continue to monitor developments closely and provide further updates as more detail and draft legislation become available.

As always, do not commit to buying or selling significant assets without advice first.

Helena Golby – Client Director, Accounting & Business Advisory