In this article:
Bucket Companies, Income Splitting and Restructures
For business owners
Current Law
A Capital Gain through a Family Trust
Before You Rely on a Bucket Company
Are the small business CGT concessions affected?
The 3-Year Restructure Window
Start Early, Stay Ahead
Family Groups & Business Owners Checklist
Frequently Asked Questions
Talk to Westcourt
Bucket Companies, Income Splitting and Restructures
If your family trust distributes income to low-rate beneficiaries or to a bucket company, the change announced for 1 July 2028 is the bigger issue — bigger, for many private business groups, than the capital gains tax (CGT) reform covered in Parts 1 and 2. From 1 July 2028, a 30% minimum tax applies to the taxable income of discretionary trusts. It strikes directly at income splitting; the main tax reason many family groups use a trust in the first place. This article explains the measure, works through a capital gain flowing through a trust, and sets out what to review. These are announced measures, not yet law, and several design points are still under consultation.
What this means for business owners
This change is not only about CGT. It is about the loss of income-splitting and bucket-company advantages from 1 July 2028. Most family trusts will still be worth keeping for asset protection and the small business CGT concessions — but the income-tax case for a structure should be reviewed now, while the three-year restructure rollover is available. Westcourt can model the trust distribution impact, the bucket-company exposure, and the restructure cost and transfer duty risk.
Current Law
Under the current law, the net income of a discretionary trust is generally taxed in the hands of the beneficiaries who are entitled to it, at each beneficiary’s own marginal rate. That is what makes income splitting through a family trust possible.
From 1 July 2028, the announced measure changes this. The trustee of an in-scope discretionary trust will pay a minimum tax of 30% on the trust’s taxable income. A non-corporate beneficiary then receives a non-refundable credit for the tax the trustee has paid. The practical effect:
- A beneficiary on a marginal rate above 30% uses the credit and pays top-up tax for the difference.
- A beneficiary on a marginal rate below 30% cannot use the full credit. Because it is non-refundable, the excess is lost — the income is effectively taxed at 30%.
- A corporate beneficiary is not expected to receive a credit at all. This is a deliberate design choice to discourage the use of bucket companies, and it creates a real double-tax exposure.
Superannuation funds, special disability trusts and deceased estates are expected to be outside the measure. For testamentary trusts, the announced exclusion is understood to apply to income from the assets of testamentary trusts that exi sted at the time of announcement — not necessarily to all income of every testamentary trust. The collection mechanism, and how franking credits in excess of the minimum tax are treated, are still under consultation.
Worked example: A Capital Gain through a Family Trust
This example shows how the two measures interact. The trust minimum tax applies from 1 July 2028 — a year after the CGT changes — so assume a family trust makes a real capital gain (after applying cost base indexation) of $400,000 in the 2028–29 income year. Figures are rounded and illustrative, before offsets and the Medicare levy, and rest on the announced design — the trust rules are not yet law.
The trustee pays the 30% minimum tax on the trust’s taxable income, which includes the capital gain: $400,000 × 30% = $120,000 at the trustee level. What happens next depends on who the gain is appointed to. The table shows two ways the same $400,000 might be distributed.
Distributing income and capital to a high-rate beneficiary produces much the same total tax as today — the credit simply moves where the tax is paid. The loss falls where the old planning created the saving: splitting the gain to low-rate family members no longer pulls the rate below 30%, because any credit above each beneficiary’s own liability is lost. A corporate beneficiary is worse again — it receives no credit at all, so the 30% trustee tax and the company’s own tax on its entitlement can both apply.
Wait and See
The 30% minimum tax does not change the tax on a capital gain appointed to a high-rate individual through a trust. What it removes is the rate advantage of splitting that gain to low-rate hands. And practically, not many “low rate beneficiaries” exist with many family groups. The bucket company strategy becomes materially less attractive and may produce double-tax exposure unless the final rules provide relief. For family groups whose planning relied on either, the discretionary trust’s comparative tax advantage is materially reduced from 1 July 2028.
There is definitely a “wait and see” approach to bucket companies. The government is fundamentally proposing a 63% tax rate to people using bucket companies. While not yet law, it is not certain if the electorate will see that as fair given the commercial reasons for bucket companies.
Before you rely on a bucket company again. If your trust currently distributes to low-rate beneficiaries or a bucket company, ask Westcourt to model the 2028 impact now — the trust distribution outcome, the bucket-company exposure, and whether a restructure using the three-year rollover is worth it. Decisions made early have more options than decisions made in 2030.
Are the small business CGT concessions affected?
For business owners, the largest CGT event is usually the sale of the business itself. The four small business CGT concessions — the 15-year exemption, the 50% active asset reduction, the retirement exemption and the small business rollover — are announced as retained, unchanged.
This matters, but it needs care. A business sold through a discretionary trust that meets the concession conditions can still access the 15-year exemption or the other concessions. To the extent the concessions reduce or eliminate the taxable gain, they reduce the amount exposed to the trust minimum tax. Any residual taxable income — the part of a gain the concessions do not remove — may still need to be tested under the trust minimum tax and beneficiary credit rules. Asset protection through the trust is unaffected. What the 2028 measure undermines is the year-to-year income splitting and retained-earnings planning, not the concessions themselves.
How the concessions interact with cost base indexation and the transitional split has not been spelled out in detail. Anyone approaching a business sale or succession should treat the concession position as its own piece of advice, not an afterthought to the general rules.
The 3-Year Restructure Window
The Budget announced expanded CGT rollover relief for three years, from 1 July 2027 to 30 June 2030, to let small businesses restructure out of a discretionary trust — for example into a company or a fixed unit trust — without triggering an immediate CGT liability.
Start Early, Stay Ahead
The rollover is a genuine planning window, but it is not a reason to restructure by reflex. A company solves the 30% rate question but gives up the flexibility of discretionary distributions, and the rollover protects against income tax and CGT — not necessarily against state transfer duty. Restructuring also has a real cost. The decision should weigh the value of the small business CGT concessions, any retained-earnings strategy, transfer duty exposure and the cost of the restructure itself. Start the review early: a decision made in 2027 has more options than one made in 2030.
Family Groups & Business Owners Checklist
- Review your structure against both measures — the 2027 CGT change and the 2028 trust minimum tax — not just one.
- If you rely on distributing trust income to low-rate family members, or on a bucket company, reassess that planning for years from 1 July 2028.
- If a business sale or succession is on the horizon, confirm the small business CGT concession position as separate, specific advice.
- If restructuring may be the answer, use the rollover window deliberately — model it well before 30 June 2030, and factor in transfer duty.
- Do not unwind a family trust by reflex. Asset protection and the CGT concessions remain valuable; the review is about whether the income-tax advantage still justifies the structure.
Frequently Asked Questions
It is announced to apply from 1 July 2028 — a year after the CGT changes, which start on 1 July 2027.
No — it is announced to apply to discretionary trusts, and the exclusions are broader than a short summary can capture. The minimum tax is announced not to apply to other trust types including fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts. Certain income is also excluded — primary production income, certain income relating to vulnerable minors, amounts subject to non-resident withholding tax, and income from the assets of testamentary trusts that existed at announcement. The detailed scope will be set by the legislation.
Often, yes. Asset protection and access to the small business CGT concessions are not affected. What changes is the income-tax advantage of splitting income to low-rate beneficiaries. Whether the structure still suits is a question to model for your group.
Not by default. A company caps the rate but removes distribution flexibility, and a restructure carries cost and possible transfer duty. The rollover window makes the option available — it does not make it automatically right.
Talk to Westcourt before you act
This is Part 3 of three. Part 1 explains the new CGT rules and Part 2 works through the numbers on whether to sell before 1 July 2027; a hub page, “CGT and Trust Tax Reform 2027–2028: Guide for Private Business Owners”, links all three. The CGT and trust measures are announced but not yet law, and several design points are still under consultation.
Whether your family group should restructure, and how to sequence it against the rollover window, turns on facts and numbers specific to you. Before restructuring or unwinding a trust, contact Westcourt for a CGT and structure review — while there is still time to use the rollover and plan the outcome.
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