Australian Company Shares in an Offshore Trust: Tax Risks

Introduction

Moving your Australian company shares into an offshore trust can look like a simple restructuring step, but it triggers immediate capital gains tax & ongoing attribution that are easy to underestimate. The proposed discretionary trust tax changes could also affect the structure’s long-term value.

This article explains what happens at the point of transfer, how dividends & franking credits are treated once the shares sit in the trust, & what to work through before you restructure.

Interactive Tool: Check Your CGT & Tax Risks for Moving Shares Offshore

Why This Is More Consequential Than Most Owners Expect

Triggering Immediate Capital Gains Tax Events

Moving Australian company shares into an offshore trust is not just an administrative restructure. Transferring shares to an offshore trust is a disposal for CGT purposes regardless of whether any cash changes hands — CGT Event E1 or E2 triggers at market value at the date of transfer. The tax event arises when the shares move into the trust, rather than waiting for a future sale to a third party.

Practically, this matters for business owners when assessing whether the trust structure is financially worthwhile because the transfer can create an immediate capital gains tax liability before the structure produces any commercial return.

Activating Ongoing Transferor Trust Rules

The transfer does not finish the tax analysis. Once the shares are held through the offshore trust, the transferor trust rules apply on an ongoing basis and change how income and gains from those shares are treated each year.

Australian business owners often assess the structure by looking only at the transfer date, without accounting for the annual taxation of trust income and gains that may follow. Practically, this matters for business owners when dividends or gains arise in the trust because the structure creates a continuing tax consideration rather than a one-off CGT event.

The CGT Event That Happens at the Point of Transfer

Understanding CGT Event E1 & E2

Transferring shares into an offshore trust is not merely an ownership record change. For Australian business owners, a capital gains tax cost can arise before the trust receives any sale proceeds.

The applicable event depends on the trust structure:

• CGT Event E1: under Section 104-55 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’), this applies when a new trust is created over a CGT asset.
• CGT Event E2: under Section 104-60 of the ITAA 1997, this applies when a CGT asset is transferred to an existing trust.

Choosing the wrong starting assumption can cause the upfront tax cost of the trust restructure to be assessed incorrectly.

Applying Market Value Substitution

The transfer must be assessed by reference to the shares’ market value at the transfer date. Both CGT Event E1 and CGT Event E2 operate like a disposal, requiring the market value or relevant capital proceeds to be compared with the shares’ cost base to determine whether a capital gain or capital loss arises.

A proper valuation is therefore central before the transfer occurs. Where the shares have increased substantially since acquisition, capital gains tax may be payable on that increase even though the offshore trust has paid no cash for the shares—leaving the transferor with a tax liability that is not funded by sale proceeds.

What the Transferor Trust Rules Mean After the Transfer

Annual Attribution of Trust Income

Moving Australian company shares into an offshore trust does not end the Australian owner’s tax connection with the income produced by those shares. Under the transferor trust rules in Division 6AAA, a share of the trust’s income may be attributed to the person who transferred the shares each year, even where the trust makes no distribution.

The result is an annual taxation issue for Australian business owners, rather than a liability confined to the transfer date. Income arising from the shares can therefore be attributed to the transferor without cash being received, which can make the trust structure more difficult to assess against its intended purpose.

Assessing the Ongoing Tax Cost

Practically, this matters for business owners when the shares produce income, but the offshore trust retains that income rather than distributing it. The ongoing tax cost must be included in the wider assessment of the trust structure because a restructure that appears manageable at transfer can become more expensive through repeated annual attribution.

How Dividends & Capital Gains Are Treated Once the Shares Are in the Trust

How Offshore Ownership Affects Franking Credits

A non-resident trust generally cannot claim a refund of excess franking credits. This can reduce the value of franked dividends compared with direct ownership by an eligible Australian-resident shareholder.

Withholding Tax & Taxable Australian Property

The trust structure does not remove Australian tax consequences for dividends or a later share sale. Withholding tax may apply to unfranked dividends paid to a non-resident trust. Fully franked dividends are generally exempt from withholding tax.

Australian CGT on a later share sale generally depends on whether the shares are taxable Australian property. Offshore ownership therefore does not, by itself, remove Australian tax exposure.

The Impact of the 2026 Budget on Trust Structures

The Minimum Tax on Discretionary Trusts

The 2026-27 Budget measures could change the economics of holding Australian company shares through a discretionary trust, whether the trust is offshore or domestic. The government proposes a 30% minimum tax for affected discretionary trusts from 1 July 2028.

For affected trusts, the proposal would change how tax and franking credits are applied. Its effect depends on the trust and beneficiaries, so the proposal needs to be considered in the broader financial comparison.

Changes to the CGT Discount & The Rollover Window

Separately, legislation passed in June 2026 changes how capital gains are taxed through trusts. From 1 July 2027, the 50% capital gains tax discount under Division 115 of the ITAA 1997 will be replaced by cost base indexation and a 30% minimum tax floor for individuals, partnerships, and trusts. Gains accrued before 1 July 2027 retain the 50% discount under transitional rules.

A proposed rollover window would run from 1 July 2027 to 30 June 2030. During that period, a discretionary trust may restructure into a company or fixed trust without triggering income tax or capital gains tax consequences under the proposed relief. If enacted, the rollover could create a planning opportunity, but the window would not remove the need to assess the trust structure, valuations, eligibility conditions and wider taxation effects before a restructure.

What to Work Through Before Any Shares Are Transferred

Calculating the Upfront CGT Cost

The transfer should not proceed until the upfront capital gains tax cost has been calculated using the shares’ market value at the transfer date, as part of offshore trust setup and tax planning for Australian business owners.

Practically, this matters for business owners when the transfer creates a tax liability even though no cash is received for the shares. The analysis must also establish:

• whether the transferor trust rules apply;
• how much income may be attributed each year; and
• whether that ongoing cost makes the trust structure financially workable.

Evaluating the Long-Term Economic Viability

Australian business owners need to assess the trust structure against its intended purpose after all Australian tax implications are included as part of broader international company and offshore structure design for Australians.

The comparison must also allow for the non-resident trust’s general inability to claim refunds of excess franking credits.

In addition, the proposed discretionary trust measures could add further pressure for affected trusts through:

• the proposed 30% minimum tax from 1 July 2028; and
• the proposed franking credit ordering rule.

The assessment should compare the franking credit position, annual taxation of trust income, future capital gains treatment, and any rollover window, if enacted, to restructure from a discretionary trust to a company or fixed trust between 1 July 2027 and 30 June 2030. If those costs outweigh the intended benefit, the structure may fail to achieve its purpose despite the expense of creating it.

Conclusion

Moving Australian company shares into an offshore trust can create an upfront CGT cost, ongoing Division 6AAA attribution, different taxation of dividends, & possible Australian tax on later gains. The non-resident trust’s general inability to claim refunds of excess franking credits, together with the proposed 30% minimum tax for affected discretionary trusts from 1 July 2028, could materially change the trust structure’s economics.

Before restructuring, contact WealthSafe’s offshore trust setup specialists to consider the full tax implications, timing, valuation, & available rollover options. WealthSafe helps business owners develop structures that remain legal, defensible, & consistent with how the business actually operates.

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