Discretion advised on the 30% trust tax, $10m CGT lifeline & startup sweeteners

The Federal Government has released further detail on its tax reform package, providing greater clarity on measures affecting small businesses, startups, and trust structures.

These updates provide further clarity on the 2026–27 Federal Budget reforms, outlining how key measures will operate in practice, as set out in the Government’s tax reform implementation announcement and legislated through the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026. The Bill and explanatory memorandum can be found here.

The latest announcements do not change the core direction of the Budget as highlighted in our FedBud 26 overview and FedBud 2026 follow-up webinar series. However, they begin to address key concerns raised during consultation, particularly in relation to targeted concessions and the treatment of testamentary trusts and capital gains tax (CGT) settings.

Key updates

Expanded access to CGT concessions

• The turnover threshold for the small business 50% active asset CGT concession is proposed to increase from $2m to $10m.
• This is expected to extend eligibility to around 98% of Australian businesses.

New support for startups and innovation

• A proposed Innovative Business CGT Concession introduces a 50% discount for early-stage investors, founders, and employee share scheme participants.
• Consultation is ongoing on how this concession will operate in practice.

Removed the power of the Minister to determine other assets that would retain the 50% CGT discount

• The types of assets that are able to access the 50% CGT discount are now locked in and can not be expanded by the Minister.

Introduction of a 30% minimum tax on discretionary trusts

• From 1 July 2028, a minimum 30% tax is proposed to apply to discretionary trust income.
• This represents a fundamental change to traditional income distribution strategies and is designed to limit income splitting.

Removing the ability for superfunds to use limited recourse borrowing

• In another blow to investors, self-managed super funds (SMSFs) will no longer be able to utilise limited recourse borrowing arrangements to acquire property.
• There are transitional arrangements that allow existing limited recourse borrowing arrangements to continue.

Removing the exemption for salary packaged work related items

• From 1 July 2027, eligible work-related items such as iPads, mobile phones, laptops, protective clothing, and tools of trade will not longer be exempt from fringe benefits tax (FBT) if salary packaged.

Testamentary trusts

• As part of the reform package, the Government confirmed in the media release that income from testamentary trusts will be exempt from the proposed 30% minimum tax, including discretionary testamentary trusts.

However, the supporting consultation materials indicate that this exemption will be subject to conditions and further clarification, as such it will be important to review the legislative detail and guidance before these measures take effect.

For a more detailed breakdown, see our alert on Proposed testamentary trust rules: Understanding the 30% minimum tax exemption.

What this means for clients

These reforms will impact businesses, investors, and families differently depending on their structure:

• Small business owners will benefit from broader CGT concessions and improved cash flow planning opportunities, particularly where business sale or succession is being considered.
• Startups and founders may gain access to new investment incentives, supporting capital raising and growth.
• Trust vehicles in family groups and private business owners will be subject to higher tax from 2028.
• Estate planning strategies will become more complex, with testamentary trusts remaining attractive but subject to new conditions and integrity measures.

Importantly, while most small businesses will continue to access CGT relief, those operating through discretionary trusts will need to reassess whether their current structures remain fit for purpose.

The impact

Overall, the reforms aim to strike a balance between supporting investment and reducing tax barriers for business, while strengthening integrity around trust taxation.

The shift toward a minimum tax regime represents a move away from flexible income splitting and toward more consistent tax outcomes across different structures. For many clients, this will mean:

• reviewing ownership and operating structures before 2028
• reconsidering succession and estate planning arrangements
• identifying opportunities to restructure, particularly during any available transitional relief period
• modelling future tax positions under the new rules.

How SW can help

SW can support you in navigating these reforms with confidence. Our team can:

• assess the impact of proposed changes on your current structure
• review your tax, succession, and estate planning strategies
• identify restructuring opportunities ahead of the 2028 commencement
• provide practical guidance as further legislation and ATO guidance is released.

If you would like to understand what these changes mean for you or your clients, please reach out to your SW advisor.

Contributors

Julia Lee | Business Development & Marketing Executive