A family trust that now splits $180,000 in business profit among a husband, wife and 19-year-old daughter could soon face a very different tax bill. Under the proposed arrangements, the trust would pay a flat 30 per cent, lifting the annual charge from about $27,000 to $54,000 and effectively doubling what the family pays now.
For the writer, who says he and his wife are in their late 50s and run a small business through the trust, the present set-up has each family member receiving $60,000 and paying about $9,000 tax a year. The change is still two years away, but one option already being discussed is to pay salaries of at least $45,000 each, enough to bring the recipients into the 30 per cent tax bracket. The balance could then be paid as a trust distribution or moved into superannuation, where it would be taxed at 15 per cent. If the daughter is put on wages, the family would need to show she genuinely earned them with hours worked at market rates.
That trust question sits alongside a second one with a far older paper trail. A 76-year-old woman owns a Sydney property that her parents bought in 1955 for £2,940, or $5,880, from War Service Homes. Ownership passed to her in 2009 under her mother’s will, when probate valued it at $550,000. The house has never been rented, no tax deductions have ever been claimed, and her son lives there now with the expectation that he will inherit it eventually under her will. Today, the property is estimated to be worth $1.9 million.
The tax treatment turns on what happens next. If she transferred the home to her son now at market value, that would trigger a capital gains tax event, because transfers to family members are treated as if the property had been sold for market value even if no money changes hands. Because the property has never produced income, many holding costs since 2009 can be added to the cost base, including rates, land tax, insurance, repairs and maintenance. On one set of estimates, if the cost base were $600,000 and the net market value after selling costs were $1.8 million, the capital gain would be $1.2 million. After the 50 per cent CGT discount, the taxable gain would fall to $600,000, leaving tax of roughly $240,000 depending on other income.
Leaving the property in the will produces a different result. Her death would not itself trigger CGT, and her son would inherit the property with her existing cost base, effectively taking on the unrealised capital gain. If he sold soon after inheriting it, CGT would largely be based on her original cost base. Because he is already living in the property, he may also qualify for a partial main residence exemption for the period after inheritance while he occupies it. She is grandfathered and will not lose the 50 per cent capital gains tax discount on the gain accrued up to July 1, 2027.
What links the two cases is plain enough: the rules are still two years away in one instance, but the decisions have already started. For the family business, the likely response is to redraw pay and distributions to blunt the impact. For the Sydney home, the sharper question is whether a sale now would force a tax bill the family can avoid by waiting and passing the property through the will instead. In both cases, the numbers are only estimates, but they show how quickly trust and inheritance planning can turn into hard cash choices.
