For many Australian small business owners, a discretionary trust has been an important part of their business and tax structure. Trusts can provide flexibility around distributions and may also support broader goals such as asset protection and succession planning.

However, proposed changes to Australia’s tax system could cause some business owners to reconsider whether their existing structure remains appropriate.

From 1 July 2028, the Australian Government plans to introduce a 30% minimum tax on discretionary trusts, subject to specified exceptions. The Government is also proposing expanded rollover relief for businesses and individuals who choose to restructure from a discretionary trust, available for three years from 1 July 2027.

Latitude Accountants CEO John Saade discussed these proposed reforms in The CEO Breakdown, including the possibility that accountants may recommend moving some clients out of discretionary trusts. However, John also highlighted a major complication: restructuring can create high costs, including state stamp duty.

So, should your business move from a trust to a company?

The answer is: not necessarily. Before making any decision, you need to understand the tax, legal, commercial and transaction costs involved.

Why Are Businesses Considering Moving From a Trust to a Company?

The proposed 30% minimum tax is expected to affect a minority of small businesses using discretionary trusts. Treasury estimates that more than 90% of Australia’s 2.7 million active small businesses will not be affected by the minimum tax in any given year.

For businesses that could be affected, however, the proposed changes may make an existing trust structure less attractive.

Under the current system, discretionary trust income is generally distributed to beneficiaries and taxed according to the applicable rules and beneficiary circumstances.

Under the proposed changes, a 30% minimum tax would apply at the trustee level to relevant discretionary trust income from 1 July 2028. Beneficiaries other than corporate beneficiaries would receive non-refundable credits for tax paid by the trustee.

This could prompt some business owners to compare their existing trust structure with alternatives, including companies.

But comparing tax rates alone is not enough.

Trust vs Company: What Is the Difference?

A trust and a company are fundamentally different business structures.

How a Trust Works

A trust generally involves a trustee holding and managing assets for beneficiaries.

A discretionary trust can provide flexibility because the trustee may have discretion over how income is distributed among eligible beneficiaries, subject to the trust deed and tax law.

Businesses may establish trusts for reasons including:

• Flexibility in distributing income
• Asset ownership
• Succession planning
• Asset protection considerations
• Family wealth planning
• Business ownership

How a Company Works

A company is a separate legal entity that can own assets, enter contracts and operate a business independently of its shareholders.

Companies can provide:

• Separate legal personality
• Limited liability for shareholders, subject to exceptions
• Different tax and distribution arrangements
• Potential opportunities for retaining profits within the company
• A structure that may suit businesses intending to reinvest profits and grow

Neither structure is automatically better.

The right choice depends on the business owner’s circumstances, objectives and the assets involved.

The Proposed 30% Trust Tax Could Change the Calculation

The proposed reforms mean some discretionary trust users may need to reconsider their existing arrangements.

The Government has proposed a 30% minimum tax from 1 July 2028, while also providing expanded rollover relief for three years from 1 July 2027 to support businesses that decide to restructure.

This creates a potential planning window.

But the existence of rollover relief does not mean restructuring is automatically tax-free.

There can still be other consequences, particularly when valuable business assets, property or investments are involved.

What Could Happen If You Transfer Your Business to a Company?

Moving a business from a trust to a company can involve transferring assets from the existing structure to the new structure.

Depending on the circumstances, this can create several issues.

Capital Gains Tax

Transferring an asset can potentially trigger CGT consequences.

This is particularly important where a business has grown significantly in value since it was established.

The proposed reforms include expanded rollover relief from 1 July 2027, and the Government has confirmed that the existing four small business CGT concessions will remain available for eligible businesses.

However, eligibility needs to be assessed based on the specific transaction and circumstances.

Stamp Duty

Stamp duty can be an even bigger issue for businesses holding property.

If a trust owns land or other dutiable assets and those assets are transferred as part of a restructure, state or territory duties may apply.

This is particularly relevant because federal tax reform does not automatically eliminate state-based stamp duty.

As John Saade highlighted in the CEO Breakdown, a restructure that looks attractive from a federal tax perspective could potentially become much more expensive once stamp duty is considered.

Legal and Accounting Costs

A restructure can also involve:

• Legal advice
• New company establishment costs
• Accounting fees
• New documentation
• Changes to contracts
• Changes to banking arrangements
• Changes to registrations and licences
• Changes to ownership records

These costs should be included when comparing structures.

Don’t Forget Why Your Trust Was Established

One of the biggest mistakes a business owner can make is focusing exclusively on tax.

Your trust may have been established for several reasons.

Before changing the structure, ask:

Why was the trust established in the first place?

Perhaps it was created for:

• Asset protection
• Succession planning
• Family wealth management
• Business ownership
• Income distribution flexibility
• Holding investments
• Separating business and investment assets

If you change the structure, some of those benefits or characteristics may also change.

A company may provide advantages in one area while creating disadvantages in another.

What About Asset Protection?

Asset protection can be an important consideration when deciding how a business should be structured.

A company is a separate legal entity, which can provide limited liability for shareholders in appropriate circumstances.

However, limited liability is not absolute.

Directors can still have personal exposure in certain circumstances, and lenders may require personal guarantees.

Similarly, a trust may have been deliberately structured to separate certain assets or risks.

Before changing structures, business owners should therefore obtain appropriate legal and accounting advice about the potential consequences.

What About Succession Planning?

Your business structure can also influence how ownership is transferred in the future.

A business owner may eventually want to:

• Transfer the business to children
• Sell the business
• Bring in new owners
• Retire
• Transfer wealth to the next generation
• Continue operating the business after a change in management

The structure that works best today may not necessarily be the structure that works best five, ten or twenty years from now.

A restructure should therefore consider both today’s tax position and tomorrow’s business objectives.

Should You Move From a Trust to a Company?

There is no universal answer.

For some businesses, moving to a company may make commercial and tax sense.

For others, retaining the existing trust could remain the better option.

The decision should be based on a comparison of:

• Current and expected tax outcomes
• Business profits
• Distribution requirements
• Asset ownership
• CGT implications
• Stamp duty
• Asset protection
• Succession planning
• Administrative costs
• Financing arrangements
• Long-term business goals

The proposed 30% minimum tax should be treated as one factor in the decision, not the entire decision.

A Practical Checklist Before Restructuring

If you are considering moving your business from a trust to a company, start by working through the following.

1. Review Your Existing Structure

Identify:

• Who owns the trust
• Who the beneficiaries are
• What assets the trust owns
• How income is currently distributed
• Why the trust was originally established

2. Calculate the Potential Tax Impact

Model what the proposed trust tax could mean for your business under different profit and distribution scenarios.

3. Identify Assets That Could Create Transfer Costs

Pay particular attention to:

• Property
• Business premises
• Investments
• Valuable business assets
• Intellectual property
• Other significant assets

4. Investigate CGT and Stamp Duty

Before transferring anything, obtain advice on potential federal and state tax consequences.

5. Compare the Long-Term Structures

Don’t just compare the next financial year’s tax bill.

Consider where you want the business to be in five or ten years.

6. Wait for the Final Rules Where Appropriate

The Government’s proposed trust tax reforms have been subject to consultation, including consultation on implementation details.

This means business owners should avoid making major structural decisions based solely on headlines or preliminary interpretations.

Why Professional Advice Matters

Restructuring a business is very different from choosing a business structure when starting from scratch.

An established business may already have:

• Significant goodwill
• Property
• Investments
• Loans
• Contracts
• Employees
• Customers
• Intellectual property
• Accumulated profits

Moving these assets and relationships into a new entity can have consequences that aren’t immediately obvious.

This is why a proper restructure should involve modelling the whole transaction, rather than simply asking which entity has the lower tax rate.

At Latitude Accountants, the focus is on proactive advice and real-world outcomes — helping business owners understand the consequences before making major financial decisions.

Frequently Asked Questions About Moving From a Trust to a Company

Does the proposed 30% trust tax mean I should move my business to a company?

No. The proposed reform may make restructuring worth considering for some businesses, but it does not mean every business operating through a discretionary trust should move to a company. Treasury expects more than 90% of active small businesses to be unaffected by the minimum tax in any given year.

When will the proposed 30% trust tax start?

The proposed minimum tax on discretionary trusts is scheduled to apply from 1 July 2028.

Will restructuring from a trust to a company be tax-free?

Not necessarily. The Government has proposed expanded rollover relief from 1 July 2027 for businesses and individuals who choose to restructure, but the specific eligibility requirements and other taxes must still be considered.

Could stamp duty apply when moving my business from a trust to a company?

Potentially. State and territory stamp duty rules can apply when certain assets, particularly property, are transferred. This needs to be assessed before any restructure takes place.

Is a company better than a discretionary trust?

Neither structure is universally better. The right structure depends on your tax position, assets, business goals, succession plans, asset-protection requirements and other circumstances.

When should I review my business structure?

With the proposed changes beginning from 2027 and 2028, businesses using discretionary trusts have time to review their circumstances. Starting early gives you more opportunity to model different options and identify potential CGT or stamp duty issues.

Talk to Latitude Accountants Before Changing Your Business Structure

Moving your business from a trust to a company is a major decision. The proposed 30% minimum tax on discretionary trusts may make a restructure worth investigating, but the right answer depends on much more than the headline tax rate.

Before transferring assets or changing your business structure, speak with an experienced adviser who can assess the potential tax, CGT, stamp duty and commercial consequences.

Latitude Accountants

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Monday to Friday: 9:00 am – 5:30 pm

Disclaimer

This article provides general information only and does not constitute financial, tax, legal, accounting or business-structuring advice. The 30% minimum tax on discretionary trusts and associated restructuring measures are subject to the relevant legislation and implementation requirements. The application of CGT, rollover relief and state or territory stamp duty will depend on the individual circumstances of each business. Obtain professional advice before restructuring a business, transferring assets or making significant tax decisions.