Australian Tax Changes to Affect Family Trusts and Property Owners

Small business owners who distribute income through family trusts will face higher tax bills under proposed changes. A family earning $180,000 annually through a trust and splitting it equally among three members currently pays about $27,000 in tax. Under the new rules the trust itself would pay a flat 30 per cent rate, raising the total tax to $54,000.

The changes take effect in two years.

Families can reduce the impact by paying members salaries of at least $45,000 each and directing remaining funds to superannuation, which is taxed at 15 per cent. Any wages paid to family members must reflect actual work performed at market rates.

Property owners who transfer assets to family members before death trigger capital gains tax calculated at market value. 9 million could produce a taxable gain of $600,000 after the 50 per cent discount, resulting in roughly $240,000 in tax. Transfers through a will avoid immediate tax and pass the existing cost base to heirs.

Owners who leave property to children can preserve the main residence exemption for periods the child occupies the home. If the child continues living there until death, subsequent heirs may receive a stepped-up cost base equal to market value at that time.

Buyers of established rental properties will no longer receive immediate tax deductions for excess expenses. Losses can be carried forward and used against future taxable income once the property generates a profit. Capital gains on assets sold after July 1, 2027 will be indexed for inflation, but gains accrued before that date remain subject to existing rules.