Everyone is asking whether to restructure out of the family trust. The harder question is who loses.
Everyone is asking whether to restructure out of the family trust before the rollover window closes. The harder question. Who loses? Can they do anything about it?
A discretionary trust has a class. Children. Grandchildren. The difficult ones. The ones not born yet.
A mere object owns no part of the assets, but has a right to due consideration. A default beneficiary owns something that can be taken away.
Now the trustee takes the rollover. Essentially all of the assets would have to move. The shares in the new company are issued to two of them. The rest still have rights. Those rights now attach to an empty trust.
A tax motive does not make that a breach. Trustees may prefer some objects over others. But good faith, real and genuine consideration and the purposes of the power still have to be satisfied. Were they? Does the deed even permit it? Who explains it to the child who was estranged that year?
The consultation paper does not ask. It raises trust law only for the alternatives, never the rollover.
The mechanics
Somebody has to decide which child gets what percentage. The one in the business, or the one who is not. And it is hard to undo, because relief could be denied where the membership of the new company changes inside a set period, other than genuine third party injections or sales.
A company holding assets in its own right gets no CGT discount. Getting money out again is a franked dividend or a Division 7A problem. Carried forward trust losses look like they stay behind, because the small business rollover it copies has no loss transfer. The paper says nothing about losses either way. It would let you leave a nominal asset in the trust so it need not be wound up. Recouped against what?
And it does not mention stamp duty once. Canberra is not switching off transfer duty or landholder duty. It is not paying the states to switch them off either. Corporate reconstruction relief is no answer, because New South Wales and Victoria expressly shut a discretionary trust out of it. Queensland at least thought about it and stops at $5 million of turnover.
The alternative the paper barely names
A company may not even be necessary. Stakeholders have suggested letting a trust elect, irrevocably, to be taxed as a fixed trust for all income tax purposes. No assets move. If the point is to end income splitting, that ends it. The paper gives it one sentence under a heading for alternatives and one question that does not name it.
None of it is law yet. Submissions closed on 31 July 2026.
Trust law is not short of remedies. Owies. Judicial advice under section 63. What it does not have is a way to satisfy the rollover conditions and the whole class at once. Essentially all the assets must move. The membership is close to frozen. The shares may have to be a single class.
So what exactly are we asking trustees to do?
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.