The tax change putting families, divorcees through the ringer

The minimum 30 per cent tax on discretionary trusts is not just impacting bucket companies, income distribution arrangements, and small businesses, but also families and divorcing couples, according to Michael Tiyce, principal at Tiyce & Lawyers Family Law Specialists.

“As trusts become less tax-effective, we may see more families reconsider how assets are structured and protected, particularly where there are relationship pressures or succession planning concerns already in play,” Tiyce said.

“Family trusts are already one of the more legally complex areas of separation disputes. If couples begin restructuring or unwinding these arrangements ahead of the reforms, there’s potential for even greater conflict when relationships break down,” he said.

“A minimum tax on discretionary trust distributions could place additional financial pressure on separated families, particularly where trusts are central to property settlements or ongoing support arrangements.”

Tiyce added that this minimum tax may also complicate negotiations by reducing flexibility during divorce proceedings.

“The best approach is to review trust deeds and financial arrangements early, rather than waiting for disputes or ATO scrutiny to arise,” Tiyce said.

“This will be even more important for families with a child with a disability, for whom future provision needs to be made to ensure their needs are met.”

“Clients should seek coordinated legal and accounting advice to ensure family structures remain commercially practical and legally sound. This will be even more important for families with a child with a disability, for whom future provision needs to be made to ensure their needs are met,” Tiyce said.

With the tax changes also impacting bucket companies and income distribution arrangements, Tiyce said small accounting firm owners must prepare for tighter compliance obligations, reduced flexibility, and the possibility of higher effective tax burdens.

“Small accounting firms will need to work more closely with legal advisers to ensure trust structures remain compliant and fit for purpose, as reforms evolve.”