Summary of "The 2026 Budget Just Changed How You Should Structure Your Business"
Finance / tax policy changes affecting business & investing (Australia)
Key timeline / implementation risk
- Parliament approval still required for all measures.
- Trust changes start 1 July 2028, but an election is due by May 2028 → possibility of reversal.
1) Capital Gains Tax (CGT) changes
- CGT discount removed: the 50% discount is being scrapped.
- Replacement: cost base indexation from 1 July 2027
- Instead of taxing half the capital gain, investors adjust the asset cost base for inflation and tax the real gain.
- New minimum tax on capital gains: 30% minimum (from 1 July 2027, implied in the discussion)
- Example implication: even if a retiree has no other income (e.g., selling an investment property), the sale is taxed at at least 30%.
Instruments/assets mentioned
- Investment properties (residential property context).
2) Negative gearing restrictions (residential property)
From 1 July 2027:
- Only new residential builds can be negatively geared.
- Established residential properties purchased after budget night: losses are quarantined
- Losses can only offset:
- rental income, or
- capital gains from residential property.
- Losses can only offset:
- Everything purchased before budget night: losses are quarantined / ring-fenced under the older rules (per the speaker’s interpretation).
Asset class
- Residential property (new builds vs established).
3) 30% minimum tax on discretionary trusts (major focus)
From 1 July 2028:
- 30% floor on all income flowing through discretionary trusts.
- The trust pays the tax, and beneficiaries receive a non-refundable tax credit for that tax when lodging their own returns.
Why “30%” may hurt (numbers provided)
- The presenter states that to reach an average personal tax rate ~30%, an individual needs roughly $230,000 income (before considering the Medicare levy discussion).
- They describe this as above typical thresholds / “well above the top tax bracket.”
Example: trust with $200,000 taxable income
- Trust taxable income: $200,000
- Trust tax at 30% floor: $60,000
- If split equally between two individuals:
- Each individual gets $100,000 taxable income (pre-tax).
- Presenter claims tax on $100,000 is $20,000 each (total $40,000).
- Because the trust already paid $60,000 and credits are non-refundable, the household is $20,000 worse off vs the $40,000 “would-be” total.
Break-even logic provided
To effectively achieve ~30% per person:
- Needs about $460,000 total trust income (~$230k per person).
- Tax at 30% to the trust on $460,000:
- ~$138,000 trust tax (presenter’s estimate)
- Split income leads to per-person tax around:
- ~$69,000 each (presenter’s figures)
Workaround described: “wages” strategy (wage floor)
Presenter recommends paying at least $45,000 wages to each individual:
- Rationale: uses lower marginal tax rates before the effective rate reaches ~30%.
- Then remaining trust income is distributed using the 30% tax credit mechanism.
Example (using earlier presenter numbers: $200,000 trust income)
- Wages to two individuals: $45,000 each → $90,000 total
- Remaining income: $110,000
- Trust tax at 30% on remaining income: $33,000
- Distribution after tax (presenter): $55,000 each
Explicit recommendation / caution (presenter framing)
- “For the majority of small business owners,” the presenter says trusts become worse than companies, suggesting restructuring into companies.
Testamentary trusts (estate planning) impacted
- The presenter states the 30% minimum also hits testamentary trusts created after budget night.
- Example given:
- $60,000 income in testamentary trust
- With 3 children → $20,000 each previously could be under tax-free thresholds
- Under the new rule:
- the trust-level 30% tax applies
- creates a new tax cost
- children may lack enough other income to make non-refundable credits usable (presenter’s explanation).
Asset/structure mentioned
- Testamentary trusts, discretionary trusts, estate planning.
“Bucket company” strategy declared effectively dead (as routed through trusts)
- “Bucket company” described as:
- Trust distributes surplus income to a company
- Company pays ~25% or 30% tax (depending on circumstances) and invests the rest
- Presenter claims the strategy is dead because:
- Trust pays 30% first on discretionary trust income
- Then the company allegedly cannot claim the trust’s tax credits, leading to another layer of 30% tax (presented as double taxation).
Government language noted
- Budget papers carve out corporate beneficiaries from receiving trust tax credits.
- They flag they’ll consult on excess franking credits—presented as acknowledging the workaround exists.
Explicit conclusion (presenter)
- “What’s dead is routing the money through the trust to get there.”
Restructuring approach suggested during a limited window
-
Rollover relief window: 3 years from 1 July 2027
- Move from discretionary trust to a company or fixed trust without triggering capital gains tax (per presenter).
-
“ASIC is setting up specific support” for small businesses incorporating (mentioned; no figures provided).
Suggested corporate structure (step outline as presented)
- Use a trading company that pays dividends directly to a holding company underneath it.
- Holding company invests the profits.
- Shares in the holding company held by:
- Individuals / spouse, or
- Using a trust (speaker emphasizes that a trust-in-the-chain may require the wages method to make the numbers work).
Why wages matter in the new structure (per presenter)
If the trust remains in the chain, presenter says it only works if:
- you distribute sufficiently high income per person, or
- you use the wages (≥$45,000 each) approach.
Additional option offered by presenter
- Alternatively, pay wages directly to individuals and distribute less/dividends from the trust.
- Caveat: wages may trigger payroll tax.
- Presenter states payroll tax threshold is roughly around $1,000,000 (varies by state).
Other budget measures mentioned (less central)
- Loss carry-back rules restored for companies under $1 billion turnover
- Allows carrying back losses to obtain a refund of tax paid in the prior two years.
- $20,000 instant asset write-off made permanent.
- Startup measure
- Startups can offset initial tax losses in early years against:
- FBT, and
- tax on wages paid.
- Qualification details not provided (“watch this”).
- Startups can offset initial tax losses in early years against:
Financial-services / investing takeaway themes (as expressed)
- Strong likelihood of trust restructuring into companies.
- Residential investment financing/tax outcomes expected to change due to negative gearing quarantine rules for established properties.
- CGT outcomes change due to:
- removal of the 50% discount
- introduction of cost base indexation
- 30% minimum CGT tax
Disclosures / disclaimers
- Presenter states measures still must pass through Parliament and warns about election timing (potential reversal).
- No explicit “not financial advice” line appears in the subtitles provided (only operational/caveat language is included).
Presenters / sources
- Presenter: Not named in the subtitles provided.
- Source referenced: “budget papers” / government budget documentation (no specific document title or author cited in the subtitles).
Category
Finance
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