Many business owners reach a point where the business is worth a great deal and is still growing. They are happy to keep what they have built, but would like the growth from here on to belong to their children rather than build up in their own estate.
Families who have lived or invested in other countries sometimes ask for an “estate freeze”, a term used overseas for locking in a founder’s current value and passing future growth to the next generation. This article explains, in general terms, the Australian position and the issues business owners and their accountants may wish to consider.
What families mean by an estate freeze
In some countries, the tax law provides a recognised way for a founder to exchange growth shares for fixed-value shares, often without an immediate tax cost, while new shares that capture future growth are issued to children or a family trust.
Australia has no equivalent statutory mechanism. Families can still pursue a similar outcome, but each step has to be tested against the ordinary rules on capital gains tax, stamp duty, company and trust law, and anti-avoidance provisions.
Ways families in Australia may approach the goal
New share classes or growth shares issued to a family trust
A company may issue a new class of shares to a family trust so that future dividends and growth flow there, while the founder’s existing shares carry a more limited entitlement. The drafting of the share rights, the timing and the price of new shares all matter. The tax law contains value shifting rules that can apply where value moves between classes of shares, and market value issues can arise. Our article on family business share classes, ownership, control and dividend policy discusses share classes in more detail.
Starting new ventures in the next generation’s structure
Often the simplest approach is that new opportunities, such as a new outlet, property or product line, are started from day one in a company or trust that benefits the next generation. Nothing existing has to be transferred. Questions remain about who funds the venture, on what terms, and whether the opportunity could be said to belong to the existing company, which may raise directors’ duties.
Gifting or selling assets to a trust
Transferring an existing business or asset to a trust is generally a capital gains tax event for the person transferring it. Where the parties are not dealing at arm’s length, the market value substitution rule may treat the transfer as made at market value. Stamp duty may also apply, depending on the state and the type of asset. If a private company lends money to fund a purchase, or a sale price is left owing, Division 7A of the Income Tax Assessment Act 1936 may need to be considered, together with how the debt is treated on death or separation.
Small business CGT concessions and rollovers
The small business CGT concessions may reduce or defer a gain where their conditions are met, and the conditions are detailed. Some rollovers, including the small business restructure rollover, may allow assets to move between entities without an immediate gain. That rollover generally requires that ultimate economic ownership does not change, so it may not suit a transfer intended to shift value to the next generation. Rollovers usually address income tax only, not duty.
The 2027 CGT reform and proposed trust changes
From 1 July 2027, the capital gains tax discount is replaced by indexation and a minimum tax for gains accruing after that date, and pre-CGT assets become taxable on growth after that date. This may affect the timing of transfers. Separately, Bills introduced on 14 October 2026 propose a minimum tax on discretionary trusts from 1 July 2028, with restructuring relief and an election for some existing trusts. These proposals are not yet law and may change, which matters if a discretionary trust is the intended home for future growth.
Non-tax risks
Control and appointor succession
Passing growth to a trust does not decide who controls it. The appointor, the directors of the trustee company and the shareholders of any holding company decide that. Who holds these roles, who takes over on death or incapacity, and whether one child could control siblings’ interests all need thought.
Family law exposure of the children
Growth held for a child may be considered if that child’s relationship breaks down. Under the Family Law Act 1975 (Cth), trust assets a person effectively controls may be treated as property, as the High Court’s decision in Kennon v Spry illustrates, while other interests may be treated as financial resources. Binding financial agreements may help but have strict requirements.
Fairness between children in and out of the business
If growth flows mainly to a child who runs the business, other children may feel left out. An imbalance may later lead to a family provision claim against the founder’s estate, and in New South Wales some property outside the estate may be designated as notional estate.
Creditor exposure
Transfers for less than market value may be examined if the person who made them later becomes bankrupt, under the clawback provisions of the Bankruptcy Act 1966 (Cth). The founder’s solvency at the time, and any personal guarantees, are relevant.
Will and estate coordination
The founder usually keeps shares, loan accounts or control roles, and these pass under the Will or the trust deed. A growth plan that is not matched by the Will, enduring powers of attorney, superannuation nominations and any overseas Wills can produce results nobody intended.
Questions to discuss with your adviser
- Is our aim to pass future growth, current value, control, or some combination?
- What tax and duty could a transfer trigger, and could any concession or rollover apply?
- How might the 2027 CGT reform and the proposed trust changes affect timing and structure?
- Who will control the receiving trust or company after us?
- How would the plan be affected if a child separated, or a family member had creditor problems?
- How are children outside the business treated, and does the Will reflect it?
How we work with your accountant
Your accountant or registered tax agent usually knows the group’s history, cost bases, loan accounts and cash flow, and is well placed to model the tax effect of each option. Our role is the legal side: the trust deed, constitution and share rights, transfer documents, shareholders’ agreement, Wills and powers of attorney, and the family law and succession risks. With your consent, we share drafts and questions with your accountant so the documents reflect the tax analysis, and we involve valuers, financial advisers and overseas lawyers where needed.
Frequently asked questions
Is there an estate freeze in Australia?
Not as a formal statutory mechanism. Families may pursue a similar aim through new share classes, new ventures in a trust, or transfers, each with its own tax and legal issues.
Can I pass business growth to my children without paying tax?
It depends on the facts. New ventures started in the next generation’s structure may avoid transferring existing assets, but moving existing assets can trigger capital gains tax and duty unless a concession or rollover applies.
Should future growth go to a family trust or directly to my children?
Each has trade-offs for control, flexibility, asset protection, family law and tax, and the proposed trust changes may affect the comparison. The answer needs advice on your circumstances.
Every family’s situation is different, and the answer often turns on details. Book a consultation so we can review your documents and circumstances before you act.
How Chua Tan Associates can help
Chua Tan Associates has practised in Melbourne since 1990 and advises business families on trusts, company structures, shareholders’ agreements and Wills that work together. Justin Chua trained in accounting (Bachelor of Commerce, accounting major), is an affiliate member of STEP (the Society of Trust and Estate Practitioners), and advises on the legal and tax structure of family wealth together. He is a Nationally Accredited Mediator and an Accredited Family Business Advisor. We work with your accountant and registered tax agent, and with lawyers in Asia, and we advise in English, Mandarin and Cantonese.
Important: This article is general information only and must not be relied on. It is not legal, tax or financial advice, does not take your circumstances into account, and may not reflect changes in the law after publication. Laws of other countries may also apply. Do not act or refrain from acting on the basis of this article. Reading it or contacting us does not create a lawyer–client relationship. Please book a consultation for advice on your situation.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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