Why Entity Setup Needs Rethinking After Budget 2026-27
Tax-equipped entities like trusts, companies, and investment partnerships are seeing meaningful changes:
- Discretionary trusts will face a minimum tax rate of 30% from income they retain starting 1 July 2028.(budget.gov.au)
- Negative gearing deductions limited to new builds for property investors from 1 July 2027. Entities buying established residential real estate thereafter won’t get full deductions against non-property income.(budget.gov.au)
- CGT reforms affect any capital gains from 1 July 2027 — investors gain tax-adjusted base plus 30% minimum tax unless old CGT rules chosen for new builds.(budget.gov.au)
What You Should Do Before Setting Up a Trust or Entity
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Choose entity type wisely
- Trusts: popular for dividing income, distributing to beneficiaries — but subject to higher minimum tax if retained income.
- Companies: benefit from carry-back loss refunds and may be more predictable in tax liability.
- Shared ownership: beware that losses, especially for property, may be less useful under new negative gearing limits.
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Plan for transitional protections
- Entities with properties or assets purchased before Budget night (12 May 2026, by 7.30pm AEST) may be grandfathered under older rules.(budget.gov.au)
- For trusts, mapping the timing of income distributions and when income is earned is critical — deferring or accelerating tactics may pay off.
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Consider the CGT treatment of new builds
- New builds offer a “choice” to use either the old 50% CGT discount or the new inflation-indexed base + minimum-tax option. That adds flexibility for new asset investment.(budget.gov.au)
Example: Trust Structure Decision
Below is a simplified scenario to demonstrate structure choices:
Family Trust A* holds passive investments, retains income each year instead of distributing to beneficiaries fully. Under 2027-28 rules, they’ll pay minimum 30% tax on that retained income, potentially higher if beneficiaries have lower marginal rates. Distributing income might be more tax-efficient.
Company B* buys a new build residential property post-Budget night intending to negatively gear the investment. They will still get some deductions against rental income, but won’t offset other income like wages — entity design matters.
Additional Considerations
- Legal and tax advice: With the interplay of budget rules, compliance, and transitional rules, professional support is essential to avoid costly mistakes.
- Cash flow planning: Companies benefit from loss carry-back and small-business asset write-off; take advantage early. Trusts may face more tax on untimely distributions.
- Administrative overhead: Changes to instalment frequency, deduction thresholds, and CGT computations will require updated accounting and software systems.
If you’re forming a trust or entity now — it’s more crucial than ever to think not just about current tax savings, but how upcoming reforms could reshape your structure’s effectiveness long term.