Budget Losers? Not Necessarily: How Smart Tax Planning Can Turn Change Into Opportunity

The Federal Budget has created plenty of discussion, particularly around proposed changes affecting property investors, discretionary trusts, capital gains tax and family groups.

For some clients, these announcements may initially feel concerning. It is easy to look at the “losers” list and assume the outcome is negative.

But tax change does not automatically mean tax loss.

In many cases, it simply means it is time to pause, review and plan more strategically.

At Incentum Group, our view is simple: when the rules change, the best response is not

panic — it is planning.

1. Property investors: move from tax-driven decisions to strategy-driven investing

One of the key concerns from the Budget is the proposed change to negative gearing, particularly for future investors purchasing established residential properties.

For many years, negative gearing has been part of the property investment conversation. Some investors have used tax deductions to assist with short-term cash flow while holding property for long-term capital growth.

If these rules change, investors may need to shift the focus from:

“How much tax can I save?”

to:

“Does this property make sense as an investment before tax?”

That shift is not necessarily a bad thing.

It may encourage investors to make better-quality decisions based on the fundamentals, including:

• rental yield;

• interest costs;

• land tax;

• cash flow;

• long-term growth prospects;

• location;

• debt levels;

• ownership structure; and

• exit strategy.

  
  

The strongest property strategies are not built on tax deductions alone. They are built on sound asset selection, clear cash-flow modelling, risk management and long-term planning.

For some investors, this may mean considering new builds. For others, it may mean reviewing commercial property, SMSF property strategies, debt reduction, or alternative ownership structures.

Incentum view: Good property investing has never been just about tax. The right property should make commercial sense, with tax forming part of the overall strategy — not the entire strategy.

2. Capital gains tax changes: review before you sell, restructure or acquire

The proposed changes to the capital gains tax rules may affect investors who have historically relied on the current CGT discount when selling long-term assets.

This may be relevant for clients holding property, shares, business assets or family investment structures.

However, the solution is not to rush into decisions.

The better approach is to review each asset carefully and model the likely outcome before acting.

Before selling, restructuring or acquiring assets, investors should consider:

• when the asset was acquired;

• whether any grandfathering rules may apply;

• the expected future growth of the asset;

• the likely holding period;

• the owner’s marginal tax rate;

• whether the asset is held personally, in a trust, company or superannuation fund;

• land tax implications;

• estate planning goals; and

• whether the asset still fits the broader investment strategy.

The key question is not simply, “What is the tax payable?”

The better question is:

“What is the after-tax outcome, and does this asset still help us achieve our long-term goals?”

Incentum view: CGT planning should be considered before signing a contract, transferring an asset or restructuring ownership. Once a transaction has occurred, the available options may be limited.

3. Discretionary trusts: still valuable, but they need a fresh review

The proposed minimum tax on discretionary trusts has caused concern for many family groups, business owners and property investors.

Discretionary trusts have long been used for important commercial and family reasons, including:

• asset protection;

• estate planning;

• succession planning;

• investment flexibility;

• business structuring; and

• family wealth management.

The proposed changes may reduce some of the tax benefits of distributing income to lower-tax beneficiaries. However, this does not mean discretionary trusts are no longer useful.

It means they should be reviewed.

A discretionary trust should not be assessed only on tax savings. It should be considered in the context of the family’s broader objectives.

Key questions include:

• Why was the trust originally established?

• Does the trust still serve its intended purpose?

• Is the trust deed up to date?

• Are the appointor, trustee and beneficiary provisions appropriate?

• Is the corporate trustee structure correct?

• Are unpaid present entitlements being managed properly?

• Are distribution decisions being documented correctly?

• Does the trust align with the family’s estate plan?

• Is the trust still the best structure for future investments?

For some clients, the trust may remain the right structure. For others, it may be worth considering whether a company, unit trust, fixed trust, SMSF or personal ownership structure may be more appropriate for future assets.

Incentum view:The question is not whether trusts are “good” or “bad”. The question is whether your trust is still the right structure for your current and future goals.

4. Family groups: move from annual tax planning to long-term wealth planning

Family groups that rely heavily on year-end trust distribution planning may be particularly affected by the proposed changes.

But this may also be a positive turning point.

Instead of reviewing tax distributions once a year, families may benefit from a more proactive planning process.

This may include:

• reviewing income before 30 June;

• considering the tax position of each beneficiary;

• managing Division 7A exposure;

• reviewing corporate beneficiary arrangements;

• documenting distribution resolutions properly;

• considering asset protection risks;

• reviewing estate planning documents;

• considering succession planning; and

• aligning tax decisions with long-term family wealth goals.

This is an opportunity to move from reactive tax planning to proactive family wealth planning.

The broader question becomes:

“How do we protect, grow and transfer family wealth in the most effective way?”

For many families, this may require coordination between their accountant, lawyer, financial adviser, mortgage broker and buyers agent.

Incentum view:Family wealth planning should not be limited to the last week of June. The best outcomes usually come from early, coordinated advice.

5. Small businesses: use the positive measures to strengthen the business

While some Budget measures may create concern, small businesses may also benefit from supportive measures such as the instant asset write-off and loss carry-back rules.

The key is to use these measures wisely.

A tax deduction should not be the only reason to spend money. However, where a business genuinely needs to invest in equipment, technology, systems or productivity improvements, the available tax measures may assist with cash flow.

Business owners should consider whether now is the right time to invest in:

• technology;

• equipment;

• automation;

• staff training;

• marketing;

• client experience;

• productivity tools;

• systems; and

• operational efficiency.

This is also a good time for business owners to ask:

• Are we profitable enough?

• Are our prices right?

• Are our systems efficient?

• Are we managing cash flow properly?

• Are we too reliant on the owner?

• Are we using technology effectively?

• Are we planning before year-end?

Incentum view:The best tax planning starts with a strong business. A profitable, well-managed business will always have more options.

6. More complexity means more need for proactive advice

One clear message from the Budget is that tax planning is becoming more complex.

The same asset may produce very different outcomes depending on whether it is owned:

• personally;

• in a discretionary trust;

• in a fixed trust;

• in a unit trust;

• in a company;

• through an SMSF; or

• across a broader family group structure.

The right answer will depend on many factors, including income, debt, family circumstances, investment goals, asset protection needs, estate planning, borrowing requirements and long-term exit strategy.

This is why advice should be sought before major decisions are made.

Important times to seek advice include before:

• buying a property;

• selling an asset;

• refinancing debt;

• setting up a trust;

• distributing trust income;

• starting a business;

• restructuring entities;

• transferring assets;

• planning retirement; or

• updating estate planning documents.

The earlier advice is sought, the more options are usually available.

Turning concern into action

For anyone concerned about being a “Budget loser”, the most important step is to take action early.

A practical review may include:

1. Reviewing your existing property and investment structures

2. Modelling after-tax cash flow under the proposed rules

3. Checking whether your trust structures are still fit for purpose

4. Reviewing potential CGT exposure before any sale or restructure

5. Considering whether future acquisitions should be held differently

6. Coordinating tax planning with estate planning and asset protection

7. Planning before the changes commence, rather than reacting later

The clients who benefit most from tax change are usually not the ones who wait. They are the ones who review, plan and adapt early.

Final thoughts

The Federal Budget may create challenges for property investors, discretionary trust users and family groups.

But challenges are not dead ends.

With the right advice, these proposed changes may become an opportunity to improve structures, strengthen cash flow, reduce risk and make better long-term decisions.

At Incentum Group, we help clients look beyond the headlines and understand what tax changes mean for their broader financial position, investment strategy and long-term goals.

Because the goal is not just to respond to tax law changes.

The goal is to build a strategy that continues to work as the rules evolve.

Incentum Group

Chartered Accountants & Business Advisors

Where Strategy Meets Success

info@incentum.au

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