Post Budget Tax Changes: Are SMSFs Now More Effective Than Discretionary Trusts?

Recent years have brought significant changes to Australia’s tax and superannuation landscape, including the introduction of Division 296 and reforms such as Payday Super. The 2026-27 Federal Budget (Budget) handed down by Treasury on 12 May 2026 proved minimally impactful for self-managed superfunds (SMSFs).

The Budget introduced significant tax reforms that reinforce the ongoing tax advantages of superannuation as an investment vehicle.  Despite the introduction of Division 296, SMSFs continue benefit from a range of significant tax concessions. These include the one-third capital gains tax discount (SMSF Discount) for complying superannuation funds, the exempt current pension income provisions, and tax-free benefit payments to members aged 60 and over.

CGT Discount and Superannuation

The capital gains tax (CGT) discount has long been a key consideration in investment structuring. Historically, individuals and trusts have been entitled to a 50% CGT discount on assets held for more than 12 months. However, from 1 July 2027 this concession is proposed to be replaced by an indexation-based regime.

Importantly, the SMSF Discount for complying SMSFs was specifically carved out in the Budget papers. If passed, this will have significant advantages for complying SMSFs as the discounted gain is included in the SMSFs assessable income and taxed at concessional rates. This can result in an effective tax rate of 10%, or even as low as 0% if the fund is fully in pension phase.

However, members with larger superannuation balances should also consider the impact of Division 296.

Minimum Tax Rates for Discretionary Trusts and SMSFs

The Budget proposed that from 1 July 2028, trustees of discretionary trusts will be required to pay tax at a minimum rate of 30% on the taxable income of the trust (Minimum Tax). Beneficiaries (other than corporate beneficiaries) will generally be entitled to receive a non-refundable tax credit for the tax paid by the trustee. This reform represents a significant change to the taxation of discretionary trusts and may influence structuring decisions.

The Budget papers indicated that fixed trusts are proposed to be excluded by these measures. However, uncertainty remains regarding the precise definition of a fixed trust for these purposes. The issue is particularly relevant for SMSFs, as the concept of fixed entitlements is already important when considering the non-arm’s length income (NALI) provisions under the Income Tax Assessment Act 1997 (ITAA).

Under the NALI provisions, where a SMSF derives income as a beneficiary of a trust, and does not have a fixed entitlement to that income, the income may be treated as non-arm’s length income and taxed at the highest marginal rate. As a result, SMSFs cannot generally receive distributions from discretionary trusts without potentially triggering adverse tax consequences.

While the proposed Minimum Tax is unlikely to directly impact SMSF beneficiaries, SMSFs investing in trusts, particularly unit trusts, must carefully consider whether the structure complies with superannuation and tax rules before investing. An SMSF should ensure that any units it acquires provide a genuine, fixed entitlement to the income and capital of the trust.

For NALI purposes, a fixed entitlement generally requires an entitlement to trust income and capital that cannot be defeated or varied at the discretion of the trustee. The complexity around these definitions highlights the importance of understanding whether commonly used unit trusts will continue to qualify as fixed trusts and remain an effective vehicle for SMSFs.

What does this mean for SMSF members?

The suitability of any investment structure will ultimately depend on an individual’s personal circumstances, objective and risk profile. However, these proposed reforms reinforce that complying SMSFs continue to provide on of the most tax-effective long-term investment structures available.

As the consultation period continues, SMSF members should review their investment structures and succession planning to ensure they remain aligned with their long-term objectives.

For more information, please contact:

Alasdair Woodford
Principal
T: 03 5225 5217 | M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Senior Associate
T: 03 5226 8504 | M: 0491 307 550
E: jflanagan@ha.legal

Tayla Berger
Senior Associate
T: 03 5226 8559 | M: 0407 825 365
E: tberger@ha.legal

Jemimah Fitzgerald
Lawyer
T: 03 5225 5219
E: jfitzgerald@ha.legal

Prepared with the assistance of Pippa Duniam