Discretionary Trusts: Minimum Tax from 2028
From 1 July 2028, discretionary trusts (excluding certain categories like charitable trusts, superannuation, special disability trusts, deceased estates, and farming income) will be subject to a minimum 30% tax rate on taxable income, regardless of how income is distributed. (budget.gov.au)
Trustees should:
- Review distributions to beneficiaries, considering whether income is being spread to low-income family members to reduce tax rates—those strategies will likely be less effective under the new minimum rate.
- Engage early with estate planning to account for transitions, especially where trusts hold investment property or other income-producing assets that may deliver gains taxed under new CGT rules.
PAYG Instalments: More Flexibility Ahead
Small businesses will receive greater flexibility in adjusting their Pay-as-You-Go (PAYG) instalments from 1 July 2027. Modifications include:
- Opting in to monthly PAYG instalments when business conditions change, improving cash flow management.
- Increased access to the ATO’s dynamic instalments pilot, using software to better align instalments with real-time income fluctuations. (budget.gov.au)
Businesses should assess their revenue patterns and engage their tax advisors or software providers to ensure they’re ready to take advantage.
Loss Carry Back & Instant Asset Write-Off
- From 2026-27, eligible companies can carry back losses to prior two years to claim a refund against previously paid tax. This is especially beneficial for small and medium enterprises (SMEs).
- The government has permanently extended the $20,000 instant asset write-off for businesses with turnover up to $10 million, taking effect from 1 July 2026. This allows many small businesses to immediately deduct eligible assets costing less than $20,000. (budget.gov.au)
Compliance Calendar & Practical Steps
- Trustees, especially discretionary trusts, need to assess whether distributions now expose them to the minimum tax. Consider restructuring or pre-trust measures where beneficial.
- Small businesses: Liaise with accountants or tax agents to ensure your accounting systems can handle dynamic instalments and monthly payments if needed.
- Companies planning major asset purchases should aim for purchases before 30 June 2026 if wanting full benefit, as post-30 June assets may face different CGT or deduction rules.
- Maintain clear, contemporaneous documentation of acquisition dates, contracts, expenses, ownership, as penalties or audits will scrutinize timing especially in the transition years.
Real-World Example
Bear Manufacturing Pty Ltd, with turnover of $3 million, installs machinery costing $18,000 in early 2026. Under new rules, it can immediately write off this asset under the permanent $20,000 instant asset write-off. Suppose it has a loss in 2026-27; it might use that loss to offset tax paid in previous two years, obtaining a refund.
Summary
- Discretionary trusts face key changes in rate structure—plan now.
- PAYG instalment flexibility is being enhanced—consider cash flow impacts.
- Loss carry back and asset write-off improvements favor SMEs.
Staying ahead of these reforms will help your entity remain compliant and possibly benefit from opportunities in the transition.