Over 90% of Australia’s active small businesses will not be affected by the new discretionary trust minimum tax. But if your business runs through a discretionary trust and you split income among family members at low tax rates, this reform targets that arrangement directly. Here’s what you need to know.
What Changes for Small Businesses, and What Does Not
Disclaimer: The measures described in this article were announced as part of the 2026-27 Federal Budget but are not yet law. The ATO confirms legislation has not yet been introduced. Final design details may change following stakeholder consultation. This article is general in nature and does not constitute tax advice. Speak with a registered tax practitioner about how these changes may apply to your specific circumstances.
Around 350,000 Small Businesses Operate Through a Discretionary Trust
Of those, around 140,000 (about 40%) aren’t expected to pay any additional tax or need to restructure in a given year. That’s because they’re already distributing to beneficiaries on 30% or higher, or their trust’s income structure means the minimum tax adds nothing extra.
The remaining 210,000 or so businesses using discretionary trusts may face some additional tax, or may choose to restructure to reduce or remove the impact.
Paying Family Members as Employees Instead of Distributing
One option that stays completely untouched is paying genuine employees through wages or salaries. If family members work in the business, paying them a salary instead of a trust distribution means that salary doesn’t attract the 30% minimum tax.
Treasury’s small business factsheet is clear on this point: wages paid to employees actually working in the business sit outside the minimum tax. It’s a straightforward option for businesses where family members genuinely contribute, and it creates a clearer, more defensible employment record than a discretionary distribution.
This is a legitimate planning option, not a workaround. That said, if the ATO sees salary payments to family members who don’t actually work in the business as a substitute for distributions, that creates its own compliance risk.
The CGT Concessions for Small Businesses Are Fully Intact
A lot of small business owners are mixing up the CGT discount changes with the small business CGT concessions. They’re separate things.
The four small business CGT concessions remain in place:
Concession | What It Does |
15-year exemption | Disregards the entire gain if the asset was held for 15+ years, was an active asset for at least 7.5 of those years, and the CGT event is connected to retirement (age 55+) or permanent incapacity of a significant individual. |
50% active asset reduction | Halves the taxable gain on assets actively used in the business, applied on top of any general discount. |
Retirement exemption | Disregards up to $500,000 of capital gains over a lifetime, even without retiring (under-55s must contribute the amount to super). |
Active asset rollover | Defers the gain by reinvesting in a replacement asset within a two-year window. |
To access the 15-year exemption, retirement exemption, or active asset rollover, a business generally needs aggregated annual turnover under $2 million, or net assets under $6 million. The 50% active asset reduction is more generous: the Government lifted its turnover threshold from $2 million to $10 million from 1 July 2027, bringing it in line with the instant asset write-off threshold. On Treasury’s figures, that puts around 2.7 million active small businesses, or 98% of all active businesses, inside that concession, with over 90% eligible for all four.
A small business owner selling up to retire, relocate, or start fresh can still potentially reduce their CGT liability to zero by combining these concessions, even under the new CGT rules starting 1 July 2027.
The general 50% discount is being replaced by cost base indexation plus a 30% minimum tax on real gains for post-2027 sales. The small business concessions sit on top of that new system and aren’t affected by it.
The Restructure Window and Why It Matters Now
Rollover Relief Runs From 1 July 2027 to 30 June 2030
The Government is providing a three-year window of expanded rollover relief for businesses that want to restructure out of a discretionary trust into another entity, such as a company or a fixed trust. This relief means no income tax or CGT is triggered by the restructure itself.
That window opens on 1 July 2027, a full year before the minimum tax starts, and closes on 30 June 2030.
The timing matters for two reasons. First, the relief isn’t automatic. You need to complete the restructure within the window to get the protection. Second, if you wait until 2028, once the minimum tax is already applying, before deciding whether to restructure, you lose a year of the window and may face the minimum tax in the meantime.
Company vs Fixed Trust: What the Numbers Look Like
Treasury’s own modelling illustrates the gap. Loretta runs her business through a company, pays herself a $100,000 salary, and retains $200,000 in the company at the 25% small business rate. Total tax: $72,002.
Kurt runs through a family discretionary trust, pays himself a $100,000 salary, and distributes the remaining $200,000 to four extended family members at $50,000 each. Total tax under current rules: $42,010.
Once the minimum tax applies, Kurt’s trust pays 30% on the $200,000 distributed to family members. Total tax: $86,002, making the trust structure $14,000 a year more expensive than Loretta’s company.
That gap is what makes the restructure window worth using. Businesses in a similar position to Kurt have until 30 June 2030 to move into a company structure and access the 25% small business rate, dividend imputation, and simpler access to retained earnings and debt financing, without paying CGT or income tax on the restructure itself.
Restructuring Into a Fixed Trust Is Also an Option
Not every business needs to move into a company. Restructuring into a fixed trust keeps some of the structural benefits of a trust, such as asset protection and flow-through tax treatment, while giving beneficiaries fixed entitlements rather than discretionary ones. Fixed trusts are excluded from the minimum tax entirely.
What Excluded Trusts and Income Types Mean for You
Several trust types are excluded outright:
- Fixed trusts
- Widely-held trusts (most managed investment trusts fall here)
- Complying superannuation funds, including SMSFs
- Special disability trusts
- Deceased estates
- Charitable trusts
Several income types are also excluded from the minimum tax calculation, even within a discretionary trust that’s otherwise in scope:
- Primary production income (farming income)
- Certain income relating to vulnerable minors
- Amounts subject to non-resident withholding tax
- Income from genuine testamentary trusts
On that last point, the Government widened this carve-out after the original Budget announcement. The initial proposal only protected testamentary trusts already in existence on 12 May 2026, which would have left out almost every testamentary trust clause sitting in a will yet to take effect. Following consultation, the Prime Minister confirmed on 18 June 2026 that all discretionary testamentary trusts established for genuine testamentary purposes are exempt, not just those already running on Budget night. The exclusion is limited to income from assets of the deceased estate, and for testamentary trusts set up on or after 1 July 2028, it only applies where the trust can benefit individuals and income tax-exempt entities.
For mixed trusts, or trusts with some excluded income sitting alongside other income, working out exactly what the minimum tax applies to will take careful analysis. Several design details are still subject to consultation, so the final rules may shift before 1 July 2028.
If your business runs through a discretionary trust, now is the time to work out where you sit. Book a review with Number Solutions to check whether restructuring makes sense for you, and to make full use of the rollover window before it closes.
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