{"id":20260,"date":"2026-10-31T13:14:49","date_gmt":"2026-10-31T02:14:49","guid":{"rendered":"https:\/\/chuatan.com.au\/?p=20260"},"modified":"2026-10-31T13:22:38","modified_gmt":"2026-10-31T02:22:38","slug":"estate-freeze-australia-pass-business-growth-to-children","status":"publish","type":"post","link":"https:\/\/chuatan.com.au\/en\/estate-freeze-australia-pass-business-growth-to-children\/","title":{"rendered":"Estate Freeze Australia: Passing Business Growth to Children"},"content":{"rendered":"
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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.<\/p>\n

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.<\/p>\n\n

What families mean by an estate freeze<\/h2>\n

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.<\/p>\n

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.<\/p>\n\n

Ways families in Australia may approach the goal<\/h2>\n

New share classes or growth shares issued to a family trust<\/h3>\n

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.<\/p>\n

Starting new ventures in the next generation’s structure<\/h3>\n

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.<\/p>\n

Gifting or selling assets to a trust<\/h3>\n

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.<\/p>\n

Small business CGT concessions and rollovers<\/h3>\n

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.<\/p>\n

The 2027 CGT reform and proposed trust changes<\/h3>\n

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.<\/p>\n\n

Non-tax risks<\/h2>\n

Control and appointor succession<\/h3>\n

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.<\/p>\n

Family law exposure of the children<\/h3>\n

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.<\/p>\n

Fairness between children in and out of the business<\/h3>\n

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.<\/p>\n

Creditor exposure<\/h3>\n

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.<\/p>\n

Will and estate coordination<\/h3>\n

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.<\/p>\n\n

Questions to discuss with your adviser<\/h2>\n