I make $180k a year through my trust. How will the new tax affect me?

My wife and I are in our late 50s and operate a small business through our family trust. The profit is usually about $180,000 a year, and that’s distributed as $60,000 each to my wife, myself and our 19-year-old daughter, who is at university. How are we likely to be affected by the proposal to levy a flat tax of 30 per cent on family trusts?

You are likely to be hit hard. Under the present arrangements, you probably pay about $9000 tax a year each. That’s a total of $27,000 in tax if the money is distributed equally among the family. Under the proposed arrangements, the trust would cop a flat tax of 30 per cent, which would be $54,000, so your tax would effectively double.

There is no need for urgent action, as these changes are still two years away, but you will certainly need to discuss with your accountant the optimal structure. One possibility is to pay yourselves salaries of at least $45,000 each, bringing you up to the 30 per cent tax bracket.

The balance could then be paid as a trust distribution or contributed to superannuation, where it would only be taxed at 15 per cent. If you pay your daughter a wage, you will need to show that she genuinely earned it, with hours worked at market rates.

I am 76 and own a property in Sydney that was originally purchased by my parents for £2940 ($5880 at the time) from War Service Homes in 1955. Ownership passed to me in 2009 as part of my mother’s will and the market value for probate was $550,000. Its estimated value is now $1.9 million.

My son lives in the property and will eventually inherit it under my will. The property has never been rented, and no tax deductions have ever been claimed. What are the capital gains tax implications of either transferring the property to him now at market value or leaving it to him in my will?

There are two separate issues here. If you transfer the property to your son now, it will trigger a capital gains tax event because transfers to family members are treated as though the property was sold at market value, even if no money changes hands.

The good news is that because the property has never produced income, many holding costs since 2009 – such as rates, land tax, insurance, repairs and maintenance – can be added to the cost base and help reduce the taxable gain.

If we assume a cost base of $600,000 and a net market value of $1.8 million after selling costs, the capital gain would be $1.2 million. After the 50 per cent CGT discount, the taxable gain would fall to $600,000. Depending on your other taxable income, the tax payable could still be roughly $240,000.

If you leave the property to your son through your will, your death itself would not trigger CGT. Instead, your son would inherit the property with your existing cost base and effectively inherit the unrealised capital gain as well.

The secret is to focus on the potential of the property and treat any tax benefits as icing on the cake.

If he sold the property shortly after inheriting it, CGT would largely be based on your original cost base. However, because he is living in the property, he may qualify for a partial main residence exemption for the period he occupies it after inheritance.

The unknown factor is future value. If you live another 20 years and Sydney property prices continue to rise, the eventual capital gain could increase. There is no great rush because you are grandfathered and will not lose the 50 per cent capital gains tax discount on the gain accrued up to July 1, 2027.

Alternatively, if your son inherits the home from you, and it remains covered by his main residence exemption until he dies, his heirs would inherit it with a cost base equal to the market value at the date of his death, meaning the accumulated capital gains tax liability would effectively disappear.

After all, your son would probably be nearing retirement age by then and, if he is still living in the house, it is quite possible he would have little desire to sell and move elsewhere. By that stage, he may not wish to borrow again and could be well and truly settled.

There is a reasonable chance he may remain in the property for the rest of his life. That’s why it is essential to get specialist tax and estate planning advice before making any decision.

I notice the budget has placed restrictions on negative gearing. If I buy an established property in the next few months, what will my tax position be?

Remember, the key to making profits in real estate is to buy an undervalued property from a seller who is keen to sell, then add value with improvements that don’t cost a fortune but increase the property’s value by far more than you spend. This is not possible with a new house or an apartment, so I think you’re on the right track by thinking about an established property.

You will no longer get an immediate tax deduction for any excess spending on the property, but you will get a credit for it in years to come. If we assume that interest rates, land tax and all the other property expenses exceed rental income by $8000 in the first year, you may need to budget for extra spending of maybe $32,000 over the next five years.

The good news is that the property should be showing a taxable profit after those five years, and then you can use the accumulated losses to reduce your taxable income at that stage. The secret here is to focus on the potential of the property and treat any tax benefits as icing on the cake. They should eventually come back to you if rents increase.

From July 1, 2027, capital gains will be adjusted for inflation. If I sell shares before then, the taxable gain is added to my income and taxed at my marginal tax rate. But what happens if I wait until just after July 1 next year? Would the gain that had built up before that date still be taxed at my marginal rate, or would it fall under the new minimum 30 per cent tax rules? The media reports I have read do not make this clear.

The key point is that only the capital gain above the market value at July 1, 2027 would potentially be subject to the new minimum 30 per cent tax rate. Any gain that had already accrued up to that date would still effectively be dealt with under the existing rules. So waiting a few days would make virtually no difference.

Noel Whittaker is author of Retirement Made Simple and other books on personal finance. Questions to: noel@noelwhittaker.com.au

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.