Important: The 2026 Federal Budget measures discussed in this article are proposed, not yet legislated. As of May 2026, the Prime Minister has indicated further consultation on discretionary trusts may occur. Seek tailored advice before making structural decisions.
The company vs trust question for property investment has a different answer today than it did before 12 May 2026. Three proposed changes to capital gains tax, negative gearing, and discretionary trust taxation now compound on each other. The combined effect shifts the structural calculus for Australian property investors and business owners. The right structure now depends on current holdings, income levels, and decision timelines. None of those variables was as decisive before this budget.
What the 2026 Federal Budget Proposes, and What Remains Undecided
Three separate changes interact directly with the company vs trust decision.
From 1 July 2027, the 50% CGT discount is replaced by an indexation model with a 30% minimum tax floor on real capital gains. This applies to individuals, partnerships, and trusts, not companies, which were never entitled to the discount.
From 1 July 2027, negative gearing for established residential properties purchased after 12 May 2026 is restricted. Rental losses can only offset future residential rental income or capital gains, not salary or other income. New builds remain fully eligible.
From 1 July 2028, a 30% minimum tax applies at the trustee level on discretionary trust income. Non-corporate beneficiaries receive a non-refundable credit. Corporate beneficiaries, bucket companies, receive no credit. Distributions to bucket companies now trigger double taxation under the proposed rules.
These three changes do not operate independently. An investor holding established residential property inside a discretionary trust purchased after budget night faces all three layers simultaneously.
The Question That Determines Which Structure Applies to You
The company vs trust question produces a different answer depending on who is asking it.
A PAYG employee buying a first investment property faces a different structural question from a business owner with a trading company, retained profits, and an existing property portfolio. For middle-market business owners, Blackwattle Tax’s core clients, the central question is specific: do your trust beneficiaries already earn above $45,000 in their own names?
If yes, the 30% minimum trust tax produces no additional cost. The trustee-level credit offsets the beneficiary’s own liability. The trust’s advantage narrows but does not disappear.
If no, if distributions go to family members with low or no other income, the income splitting benefit is effectively eliminated. The non-refundable credit means excess tax paid by the trustee cannot be recovered by a low-income beneficiary. The strategy that made discretionary trusts attractive for tax planning is gone.
When a Discretionary Trust Still Makes Sense
A discretionary trust does not become worthless under the proposed changes. It becomes more specific in terms of when it works.
Trusts retain full utility for asset protection. The legal separation between the trustee and beneficial owners remains intact and unchanged. For business owners exposed to professional liability or commercial risk, this protection has independent value regardless of the tax outcome.
Trusts also retain value for estate planning and multi-generational wealth transfer. The budget changes the tax outcome, not the legal architecture.
Existing investment properties held in a discretionary trust at 7:30 pm AEST on 12 May 2026 remain grandfathered for negative gearing. Those properties continue to be negatively geared for as long as they are held. That grandfathering ends on disposal.
When a Company Becomes the Stronger Structure
For new residential property purchases of established stock after 12 May 2026, a company presents a more stable long-term vehicle.
The corporate tax rate, 25% for base rate entities with under $50 million aggregated turnover, is fixed and predictable. It does not depend on beneficiary income levels, distribution decisions, or income splitting calculations.
The Treasury’s own budget documents present the shift clearly. Kurt earns $300,000 through a discretionary trust and splits the income across four family members at $50,000 each. Under the proposed minimum tax, his structure pays $86,002 in total tax. Loretta earns the same $300,000 through a company, pays herself $100,000 in salary, and retains the balance at the 25% corporate rate. Loretta pays $72,002 in total tax. The company saves $14,000 annually under the proposed regime.
A company also retains earnings cleanly. A discretionary trust must distribute income annually to avoid penalty tax at the top marginal rate. A company has no such requirement.
Why Trust-Held Residential Property Now Faces Three Compounding Tax Costs
The structural shift becomes most pronounced when all three budget changes apply to the same asset.
For an established residential property purchased inside a discretionary trust after 12 May 2026, rental losses are quarantined and cannot offset the owner’s salary or other income. Capital gains at sale attract indexation plus a 30% minimum tax floor, not the 50% discount. From 1 July 2028, annual rental income flowing through the trust is subject to the 30% trustee-level minimum tax, with no refundable credit available to corporate beneficiaries.
Each layer reduces after-tax returns. The combination reduces them materially.
In New South Wales, this compounds further. Discretionary trusts in NSW have no land tax-free threshold. A company purchasing the same property may qualify for a threshold under Section 29 grouping rules. On a $2 million portfolio, this difference can exceed $16,000 per year, a cost that operates entirely outside the budget changes.
The Three-Year Rollover Window That Matters Now
The budget includes a restructuring concession with a fixed deadline.
From 1 July 2027 to 30 June 2030, assets can transfer from discretionary trusts into companies or fixed trusts without income tax or CGT consequences. This window does not repeat. Assets restructured after 30 June 2030 face full income tax and CGT on transfer.
The rollover does not cover state stamp duty. NSW, Victoria, and Western Australia each apply different conditions to trust-to-company transfers. A restructure that is tax-neutral at the Commonwealth level may still attract significant stamp duty depending on the assets held. That planning must begin before the window opens in July 2027.
The correct position now is to plan, not to act. Wait for the legislation to be finalised. Execute when the rollover window opens and the detailed rules are confirmed.
The Structure Decision That Defines the Next Decade
The 2026 Federal Budget does not make discretionary trusts obsolete. It makes them more expensive in specific circumstances, and more competitive in others.
The business owner distributing to high-income beneficiaries and holding grandfathered properties faces a different calculation from the one buying a new residential investment this week. The decision requires a review of the current structure, an income analysis across all beneficiaries, and a state stamp duty assessment. It also requires a timeline mapped against the rollover window closing on 30 June 2030.
Blackwattle Tax works with innovative Australian businesses to assess the structural impact of the 2026 Federal Budget on property investment and business operations.
Book a complimentary 30-minute strategy session with Blackwattle Tax before the rollover window opens. To explore the full scope of tax advisory and business structuring services, visit our proactive tax advisory for middle-market Australian businesses.
Frequently Asked Questions
Does the 30% minimum trust tax apply to all discretionary trusts from 1 July 2028?
Around half of discretionary trusts are not expected to be affected in any given year, per Treasury modelling. Trusts distributing entirely to beneficiaries earning above $45,000 pay no additional tax.
What happens to bucket company distributions under the proposed changes?
Corporate beneficiaries receive no credit for the trustee-level minimum tax. A distribution to a bucket company now results in tax paid at the trustee level plus tax paid by the company on the same income. The bucket company strategy is effectively eliminated.
Can grandfathered properties still be negatively geared inside a trust?
Yes. Properties held in a discretionary trust at 7:30pm AEST on 12 May 2026 retain full negative gearing for as long as the property is held. Grandfathering ends on disposal.
Does the rollover cover stamp duty?
No. The Commonwealth rollover provides income tax and CGT relief only. State stamp duty is determined by each state government independently.
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Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpreted as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.