It is probably one of the most significant changes to occur during my career and I have been practising for over 30 yrs. These kinds of changes inevitably have serious repercussions in areas that people may not at first appreciate. I am not a Tax Lawyer but I suspect that the changes will have a major impact in the insolvency, finance, estate planning and disputes areas.

Whilst it is early days and the devil will be in the detail, the impact is significant. The 30% minimum tax on discretionary trusts from 1 July 2028 and the finite restructuring window (2027-2030) to transition structures will inevitably lead to many unintended consequences for decades to come. Many businesses will need to look at trying to move substantial assets (and operating businesses) out of trust structures to companies.

I can already envisage the risks of voidable transactions and creditor challenges if these restructures are poorly executed which as we know, will occur! This is not to mention the billions of dollars of financial obligations that are currently in place with banks and non-bank lenders that have provided money on the face of existing asset holding structures which more often than not involve trusts. Any restructuring will generally require the prior consent of the lender, failing which financial covenants are likely to be breached.

Assets will need new valuations which in an economy that is currently under pressure may be the last thing that a business owner will want to undergo. Could that lead to lenders revisiting their finance documents to determine whether the client is still a good risk. If a restructure is not feasible, will any additional tax payable due to an inefficient structure be a reason for a lender to call a material adverse event?

As a practitioner who works in litigation, insolvency and the finance area, I can see a number of examples that are likely to lead to either further litigation, insolvency or voidable claims because restructures are said to breach various voidable transaction sections of either the Corporations Act or the Bankruptcy Act. I am still trying to work out if there is any impact on the funds management space that routinely operates around trust structures. Whilst there are some exclusions for ‘fixed’ and other special types of trusts, it is yet unclear how these concepts will be defined.

In terms of disputes, I am sure there will be plenty of valuation disputes likely arising during asset transfers, both from an ATO point of view but from an insolvency angle if these structures then go into liquidation. Then there are the potential claims against directors for allegedly breaching their duties during these transfers and restructures. Throw in changes to CGT and a deceased estate and you will have some interesting times ahead.

I am already reaching out to my clients to start looking at their structures and planning ahead. This is particularly relevant where groups must obtain the consent of their financial institution before moving assets. Clients should obtain defensible valuations, document decisions and assess dispute risk early. We assist with pre-transaction risk analysis, dispute avoidance and litigation strategy.

For further information or to discuss how these proposed changes may impact your business or asset structures, please contact: Angelo Conti, Principal: angelo.conti@madgwicks.com.au

The information provided in this article is general in nature and cannot be relied on as legal advice, nor does it create an engagement. Please contact one our lawyers listed above for advice about your specific situation.