What happens when families restructure a trust specifically to manage a new compliance obligation — rather than for the commercial reasons trusts are usually restructured for.
Trusts are sometimes restructured — converted to a company, a fixed trust, or another entity — for ordinary commercial reasons: succession planning, bringing in new investors, or changing business needs. Compliance-driven restructuring is different: it happens because a legislative change makes the existing structure newly costly or risky to keep, and the family restructures largely to manage that new obligation.
The proposed minimum tax on discretionary trusts is a live example of a policy that could prompt exactly this kind of restructuring, at scale, within a defined window.
Restructuring out of a discretionary trust isn't a single, simple step. Depending on the family's circumstances, it can mean transferring trust assets into a company, converting to a fixed trust, or winding the trust up entirely and re-establishing the arrangement in a different form. Each pathway carries its own tax and legal consequences, and none of them happen automatically — they require professional advice, valuations, new governing documents, and, where real property or business assets are involved, formal transfers of legal title.
This is a materially different exercise from the trustee simply exercising ordinary discretion. It's a one-off, often irreversible structural change, undertaken specifically because the compliance environment shifted — not because the family's commercial circumstances did.
The most significant cost is often State transfer (stamp) duty, which applies separately from — and isn't resolved by — Commonwealth tax relief. Our own case study illustrates the scale: a $2.5 million commercial property portfolio attracts an estimated $142,500 in Victoria, $117,140 in New South Wales, or $132,025 in Queensland, averaging around $130,000 across the three jurisdictions. For a modest, long-established family trust, that single cost can exceed more than a year's net trust income.
Beyond duty, restructuring typically involves capital gains tax exposure (even where a Commonwealth rollover is available, it's usually conditional and time-limited), legal fees to draft new trust deeds or company constitutions, valuation costs, and the ordinary professional fees of accountants and lawyers guiding the process. These costs fall hardest on trusts holding real property or other illiquid assets, since those are precisely the assets that trigger duty on transfer — income-only trusts with modest liquid holdings face a much lighter path.
The proposed minimum tax on discretionary trusts includes a three-year Commonwealth CGT rollover, intended to ease exactly this kind of restructuring. But the rollover only applies where a trust transfers all of its assets out of the discretionary structure within the window — partial restructuring of a single valuable asset doesn't qualify — and it's legally unable to be combined with the alternative election mechanism also introduced in the Exposure Draft. Critically, the rollover addresses Commonwealth tax consequences only; it says nothing about State transfer duty, which remains a separate and, for many families, the more significant barrier. Our detailed analysis of this gap, including the case study above, is set out in full below.
