Does the trust itself pay CGT on the capital gain?

Not if the gain is distributed to a beneficiary. The beneficiary pays the CGT. If the trust retains the gain (no distribution is made), the trustee pays CGT at the top marginal rate without the benefit of the 50% discount for undistributed capital gains.

Can I distribute a trust capital gain to a superannuation fund?

Superannuation funds are eligible for a one-third CGT discount (equivalent to a 10% effective CGT rate in accumulation phase). Distributions to a super fund may be advantageous, but specific rules apply.

Do the legislated changes affect existing trust structures?

This is one of the key areas of uncertainty. The transitional arrangements — whether existing trust investments are grandfathered — have not been confirmed.

Do trusts get the CGT discount or indexation?

CGT discount and indexation for trusts

The tax treatment of capital gains in a trust is more complex than for individual investors. Whether your trust can access the CGT discount — or indexation under the legislated changes — depends on the type of trust, the type of beneficiary, and the Tranche 2 calculation mechanics.

Current law: the 50% CGT discount via pass-through

Under current law, a discretionary trust that sells an asset held for more than 12 months generates a capital gain eligible for the 50% discount. However, the trust itself does not apply the discount — instead, the discount is passed through to the individual beneficiary who receives the distribution.

How it works:

The trust sells a property with a $400,000 capital gain

The trust resolves to distribute this gain to an adult child beneficiary

The beneficiary applies the 50% discount to get $200,000 in their hands

The beneficiary pays CGT on $200,000 at their marginal rate

This pass-through mechanism means individual beneficiaries get the discount; companies (which do not qualify for the discount) do not get it when they receive trust distributions.

What changes under the legislated indexation

Under the legislated replacement of the CGT discount with indexation from 1 July 2027, the treatment of trusts is set out in the Treasury Exposure Draft on the Tranche 2 calculation mechanics — not yet final. Key questions include:

Will trusts be able to index the cost base of property before distributing gains to beneficiaries?
Will individual beneficiaries still apply indexation to their trust-sourced gains?
How will the 30% minimum tax apply to trust distributions of capital gains?

These details sit within the Treasury Exposure Draft on the Tranche 2 calculation mechanics — not yet final.

Companies as beneficiaries

A company that receives a capital gain distribution from a trust does not qualify for the 50% CGT discount (companies are excluded). Under indexation, whether companies can index gains is addressed in the Treasury Exposure Draft on the Tranche 2 calculation mechanics — not yet final. This is a consideration if your trust has a corporate trustee or beneficiary intended to receive capital gain distributions.

Summary

Individuals receiving trust capital gain distributions: currently get 50% discount, future uncertain
Companies receiving trust capital gain distributions: no discount, future uncertain
Trust losses (including from negative gearing): quarantined, cannot be distributed

Seek specialist advice for trust structures given the complexity and the draft Tranche 2 calculation mechanics.

Written by Koste Team · Koste Chartered Quantity Surveyors · AIQS Member · RICS Member · TPB Registered · 1300 669 400 · info@koste.ai