If your family runs investments through a discretionary trust, the 2026-27 Federal Budget has just changed the playing field significantly.
For years, discretionary trusts have been one of the most common structures for managing family wealth in Australia. Around 840,000 discretionary trusts distribute approximately $142.4 billion in income each year. A large part of their appeal has been the flexibility to distribute income to beneficiaries with lower marginal tax rates, reducing the overall family tax bill. That flexibility is about to come with a 30% floor.
Status as at July 2026: The 30% minimum tax on discretionary trusts is a Government announcement, not yet law. The ATO confirms legislation has not yet been introduced for this measure. A consultation paper is expected before a second Bill is tabled in Parliament. The broad direction is clear and unlikely to change materially, but design details are still being settled. Seek professional advice before making structural decisions.
Here’s what’s actually happening, when it kicks in, and what it means for your situation.
The Core Change: A 30% Minimum Tax on Trust Income
Starting 1 July 2028, a 30% minimum tax will apply to discretionary trusts at the trustee level.
The trustee, not the beneficiaries, calculates, reports and pays this tax. Beneficiaries who are individuals still include their trust distributions in their own tax returns, but they receive non-refundable tax credits for the tax already paid by the trustee at the trust level.
The income-splitting strategy that many families have relied on, where the trustee distributes income to lower-earning family members to reduce the overall tax bill, will no longer work the same way. The trust income is subject to a minimum 30% rate regardless of who receives it.
In plain terms: if your trust earns $200,000 and you split it equally among four family members with no other income, the trust still pays 30% tax on that $200,000. The tax advantage of splitting income into lower marginal-rate brackets is significantly reduced.
Where income is already distributed to beneficiaries taxed at 30% or higher, the minimum tax should not change the overall tax outcome. The impact falls hardest on trusts using income splitting to get effective tax rates well below that 30% floor.
What Happens to Bucket Companies
This is where it gets particularly important for many investors.
Many discretionary trust setups distribute to a corporate beneficiary, often called a “bucket company,” that captures income at the lower 25% or 30% company tax rate and defers tax for the shareholders behind it.
Under the new rules, corporate beneficiaries will not receive non-refundable credits for tax paid by the trustee. That is a deliberate design choice. If corporate beneficiaries could claim those credits, they could convert them into refundable franking credits and sidestep the minimum tax entirely.
The practical consequence: a $100 trust distribution to a bucket company could face an effective rate of around 60% or more once eventually distributed to individuals, according to modelling by Pitcher Partners. If your structure relies on distributing to a bucket company, the tax benefit of doing that through a discretionary trust will shrink considerably after 1 July 2028.
This is an urgent structural review item, not a future problem. The three-year rollover window from 1 July 2027 is the practical exit, and it is time-limited.
Three Years to Restructure
The Government has built in a restructuring window for people who want to move out of discretionary trust structures.
Expanded rollover relief runs from 1 July 2027 to 30 June 2030. During this period, small businesses and others can restructure out of a discretionary trust into a company or a fixed trust without triggering income tax or CGT consequences from the restructure itself.
That is a meaningful concession. Without rollover relief, moving assets out of a trust would normally crystallise a taxable CGT event.
If restructuring into a company, the small business corporate tax rate of 25% may apply for businesses with aggregated annual turnover under $50 million where no more than 80% of assessable income is passive. Companies also offer simpler ways to retain earnings and access debt financing.
One important limit on the rollover: it does not extend to state taxes. Transfer duty may still apply where property is moved between entities, depending on your state. Check with your adviser before assuming the restructure is tax-free end to end.
From 1 January 2027, the Australian Small Business and Family Enterprise Ombudsman will also be available to help small businesses understand their restructuring options before the minimum tax kicks in.
Who Is Affected
Around 810,000 adult taxpayers received distributions from discretionary trusts in 2022-23, plus a further 120,000 non-filers, predominantly minors, according to Government figures. That is roughly 5% of all individual tax filers.
Of the estimated 350,000 active small businesses operating through a discretionary trust, around 40% (approximately 140,000 businesses) are not expected to pay additional tax in any given year, because they are already distributing to beneficiaries with a marginal tax rate of 30% or higher.
So if you are running a business through a trust and already paying beneficiaries at or above the 30% marginal rate, the minimum tax may not materially change your outcome. If your strategy relies on splitting income down to lower-rate brackets, that is where the impact is felt most directly.
The Trusts That Are Excluded
The minimum tax applies specifically to discretionary trusts. The following are excluded:
- Fixed trusts
- Widely-held trusts (including most managed investment trusts)
- Complying superannuation funds
- Special disability trusts
- Deceased estates
- Charitable trusts
Certain categories of income are also excluded from the minimum tax:
- Primary production income (relevant for farming families)
- Income relating to vulnerable minors
- Income already subject to non-resident withholding tax
- Income from testamentary trusts established for genuine testamentary purposes
On testamentary trusts specifically: the Government expanded this exemption after the original Budget announcement. Following the 18 June 2026 consultation update, all testamentary trusts established for genuine testamentary purposes are now exempt, not just trusts that were already in existence on Budget night (12 May 2026). For trusts established on or after 1 July 2028, the exclusion applies where the trust can only benefit individuals and income tax-exempt entities.
If you are operating a family farm through a discretionary trust, the primary production income exclusion is worth examining closely with your accountant. The detail of how it applies where the farming business is conducted by a separate entity from the land-holding trust is still subject to consultation.
What You Should Be Thinking About Now
The restructuring window opens 1 July 2027. The trust minimum tax starts 1 July 2028. That gives you runway, but not unlimited time, particularly given how long restructuring advice, entity set-up, and asset transfers can take.
A few things worth working through with your accountant before then:
- What do trust distributions look like under a 30% floor, and does your current structure still produce the outcome you built it for?
- If your structure involves a bucket company receiving trust distributions, how does the picture change after 1 July 2028? The effective rate analysis may be surprising.
- Is the rollover relief window worth using to move into a company or fixed trust structure? And if so, what are the stamp duty implications in your state?
- If you hold or plan to hold residential investment property in a trust, how do the combined CGT, negative gearing, and trust minimum tax changes interact? The CGT reform and the trust minimum tax create a layered effect on residential property held in discretionary trusts that requires careful modelling.
The design details, particularly around how the minimum tax is collected, how trustees handle franking credits that exceed the minimum tax liability, and how the rollover applies in specific scenarios, remain subject to consultation. The broad direction is clear. The fine print will matter.
Planning ahead now is substantially cheaper than making reactive decisions after 1 July 2028.
Book a strategy session with Number Solutions to review your trust structure and model what the 2028 changes mean for your situation.
Frequently Asked Questions
Does this apply to my SMSF?
No. Complying superannuation funds, including SMSFs, are explicitly excluded from the 30% minimum tax on discretionary trusts. SMSFs retain their existing one-third CGT concession on assets held directly. However, if your SMSF holds assets through a discretionary trust, that trust may be caught. Speak to an SMSF-specialist adviser if this applies to you.
What if I already distribute to beneficiaries on high tax rates?
If all your distributions go to beneficiaries already on a marginal rate of 30% or above, the minimum tax should not increase the overall tax paid. The non-refundable credits beneficiaries receive for trustee-level tax offset their own liability. The impact is most significant where distributions are currently going to low-income beneficiaries, adult children studying or working part time, or non-working spouses.
Can I still use a discretionary trust for asset protection after 2028?
Yes. The minimum tax affects the tax treatment of distributions. It does not change the asset protection, succession planning, or creditor-insulation benefits of a discretionary trust. For many families, those non-tax reasons remain compelling even if the income-splitting advantage shrinks.
What happens to franking credits flowing through the trust?
This is one of the unsettled design issues. The Government has indicated that trustees receiving franked dividends will be required to use those franking credits to offset the 30% minimum tax liability. Where franking credits exceed the minimum tax, the treatment of the excess is still subject to consultation. This is particularly relevant for trusts with large share portfolios.
When will the legislation actually be introduced?
Unlike the CGT reform, which passed Parliament on 25 June 2026, the discretionary trust minimum tax is in a separate second Bill expected later in 2026. The ATO’s own page currently states the measure is not yet law. A consultation paper on the design details is expected before the Bill is tabled. Monitor the ATO’s reform page for updates.
Do I need to do anything right now?
Not urgently. The minimum tax does not start until 1 July 2028, and the restructuring window does not open until 1 July 2027. What is worth doing now is a structural review with your adviser, so that if restructuring makes sense for your situation, you have time to do it properly, not at the last minute under time pressure.
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