The 2026–27 Federal Budget presents an opportunity for some property investors and business owners to optimise their lending portfolios. By introducing a 30% minimum tax on discretionary trusts from 1 July 2028, the government has provided a proactive three-year rollover relief window. This is the perfect time to review your investment structures and possibly transition toward more efficient setups during this rollover relief period.
This article is general information only and does not constitute financial, legal or tax advice. We recommend getting advice from a qualified accountant, licensed financial adviser and solicitor before making any decisions regarding trust restructuring.
What is changing?
Discretionary trusts, sometimes called family trusts, have long been used by Australian investors and business owners to distribute income to beneficiaries at lower marginal tax rates, a strategy known as income splitting. Under the current system, a trustee can allocate trust income across family members to minimise the overall tax paid by the group.
From 1 July 2028, that flexibility is being curtailed. The trustee of a discretionary trust will be required to pay a 30% minimum tax on the trust's taxable income, regardless of how that income is distributed to beneficiaries. Beneficiaries will still receive credits for the tax paid by the trustee, avoiding double taxation, but the income splitting advantage that has made discretionary trusts attractive will be reduced.
Not all trusts will be affected in the same way. The minimum tax will not apply to fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates or charitable trusts. Some income types are also excluded, including primary production income. Around half of discretionary trusts are not expected to be affected in any given year, particularly those already distributing to beneficiaries on tax rates of 30% or higher.
But for investors and business owners whose trust structures are primarily designed to distribute income to lower-rate beneficiaries, the numbers have changed.
The rollover relief window
The government has included a concession for those who choose to restructure: rollover relief available for three years from 1 July 2027. Under this relief, investors and business owners who move assets out of a discretionary trust and into an alternative structure – such as a proprietary limited company or a fixed trust – can do so without triggering income tax consequences, including capital gains tax (CGT).
That is important as, without rollover relief, restructuring a property portfolio out of a trust would typically trigger CGT. The relief removes that barrier for a defined period.
From 1 January 2027, the Australian Small Business and Family Enterprise Ombudsman will also be available to assist small businesses in understanding their restructuring options.
The two main alternatives to a discretionary trust
For investors considering restructuring out of a discretionary trust, the two most common options are a proprietary limited company and a fixed trust. Each has distinct characteristics from both a tax and a lending perspective.
A proprietary limited company pays tax at the standard corporate rate of 30%, or 25% for base rate entities. Base rate entities are, broadly, companies with aggregated annual turnover below $50 million where passive income does not exceed 80% of total assessable income. For investors currently using income splitting to achieve effective tax rates below 30%, a company structure may result in a similar or potentially even lower tax outcome once the minimum trust tax is in place. Companies may also offer a simpler way to retain earnings, access debt financing and introduce new equity – all advantages that discretionary trusts do not offer as easily.
A fixed trust preserves many of the structural benefits of a trust, including asset protection, succession planning, separation of legal and beneficial ownership, while providing beneficiaries with more certain and defined entitlements. Unlike a discretionary trust, a fixed trust is not subject to the minimum tax, making it a viable restructuring destination for investors who want to retain a trust structure without the new tax rules.
There are other options beyond these two main alternatives, and the right choice will depend on your income, investment goals, existing portfolio and long-term plans. That is a conversation that starts with your accountant and solicitor. And once the structure is determined, your mortgage broker can step in to handle the lending side of the equation.
How does lending work for companies and fixed trusts?
Financing a property purchase through a company or fixed trust works differently to a standard residential investment loan.
Firstly, lender appetite varies significantly. Not every lender offers loans to proprietary limited companies or trusts for residential property purchases, and those that do tend to assess the application differently to other loans. The company or trust's financial history, the directors' or trustees' personal financial position and the nature of the asset all influence the assessment. Knowing which lenders are active and competitive in this space is where a broker with experience in corporate and trust lending adds genuine value.
Secondly, loan-to-value ratios (LVRs) are generally lower. Some lenders apply more conservative LVR limits for company and trust borrowers than for individuals, particularly for residential property. A larger equity contribution may be required than if you bought in your personal name.
Thirdly, interest rates and loan terms can differ. Corporate and trust loans are sometimes priced differently to personal investment loans, and the range of available products – fixed rates, interest-only terms, offset facilities – may be narrower, depending on the lender.
Finally, personal guarantees are typically required. In most cases, lenders will require the directors of a company or the trustees of a fixed trust to provide personal guarantees, meaning the borrower's personal financial position remains relevant to the assessment even when the loan is in the entity's name.
At AXTON Finance, we work with a panel of more than 30 major banks and lenders and have experience structuring loans for proprietary limited companies and fixed trusts across both residential and commercial property. We can identify competitive lenders for your specific structure and asset, and help you understand how the lending side of a restructure fits within the broader picture.
Start your conversation now
Investors and business owners who are most likely to benefit from considering restructuring are those who:
- Currently hold investment properties in a discretionary trust and rely on income splitting to manage their tax position
- Have trust distributions that flow primarily to lower-rate beneficiaries
- Are considering purchasing additional investment properties and want to choose the right structure from the start, rather than restructuring later
For those in the last category, new purchasers, the choice of structure matters from day one. Buying through a company or fixed trust requires different lending, different legal documentation and different ongoing compliance. Getting that right from the beginning is simpler than restructuring an established portfolio later.
Whether you are an existing investor or looking for a new purchase, this is a decision that involves your accountant, your solicitor and your mortgage broker working in coordination. For those with existing discretionary trusts, your tax position – whether restructuring makes sense and which structure is most appropriate – sits with your accountant and solicitor. The lending side, including which lenders will finance the new structure, what rates and terms are available and how to structure borrowings across the portfolio, is where AXTON Finance comes in.
The rollover relief window could be a good opportunity for investors who act within it. Understanding whether it applies to your situation, and having the right professional team in place to execute a restructure efficiently, should be your next steps.
This article is general information only and does not constitute financial, legal or tax advice. We recommend seeking independent advice from a qualified accountant, licensed financial adviser and solicitor before making any decisions.
Thinking about restructuring your property portfolio out of a discretionary trust? The lending side is where we come in. Speak to the team at AXTON Finance. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch.
