For years, distributing trust income to lower-income family members has been a legal and widely used way to reduce a family’s total tax bill. From 1 July 2028, that strategy costs significantly more.
Status as at July 2026: The 30% minimum tax on discretionary trusts is a Government announcement, not yet law. The ATO confirms the measure has not yet been introduced to Parliament in a separate Bill. Design details remain subject to consultation. The broad direction is clear and unlikely to shift materially, but confirm the current status with a registered tax adviser before making any structural decisions.
Why the Government Is Drawing the Line Here
The 2026-27 Federal Budget introduces a 30% minimum tax on discretionary trusts across Australia. Whatever distributions the trustee makes, the trust will need to pay at least 30 cents on the dollar on its taxable income before any of it reaches beneficiaries.
The scale of the issue is significant. As of 2022-23, there were over one million trusts in Australia, with approximately 840,000 being discretionary. That number has more than doubled in two decades, up from around 501,860 in 2003-04. In 2022-23 alone, discretionary trusts distributed $142.4 billion to other entities.
Around 90% of all private trust wealth sits with the top 10% of households, those with a net worth above roughly $2.3 million, according to the Treasury’s own Budget Explainer.
The fairness argument the Government puts forward is straightforward. A worker earning $80,000 pays tax at a 30% marginal rate on income between $45,001 and $135,000. A family trust with similar investment income can distribute across multiple family members, each paying at a lower rate. Treasury’s own analysis puts the gap at around 4 percentage points lower effective tax rates for trust-using families compared with similar-income families without one.
The 30% minimum tax is designed to close that difference. The Government expects the measure to raise approximately $4.5 billion over the forward estimates.
What is the 30% Floor?
The trustee, not the beneficiaries, will be responsible for calculating and paying 30% tax on the full taxable income of the trust each year. This happens at the trust level, before any distributions are made.
Beneficiaries still include trust income in their own tax returns. Individual and other non-corporate beneficiaries receive a non-refundable credit for the tax already paid by the trustee.
If a beneficiary’s marginal rate is 30% or higher, the credit offsets their own tax liability and no extra tax is paid overall. If their marginal rate is lower than 30%, the excess credit does not come back as a refund. That is the mechanism that removes the income-splitting advantage for lower-rate beneficiaries.
For trusts already distributing to high-income individuals, the practical change is mostly administrative. The tax moves from the beneficiary’s return to the trustee’s payment, but the total amount is similar. For trusts splitting income to spouses, adult children, or other family members with low incomes, the effective tax on those distributions rises substantially.
What This Means for Your Bucket Company
Many discretionary trusts distribute income to a corporate beneficiary, commonly called a bucket company, to access the lower corporate tax rate and accumulate franking credits. Under the minimum tax changes, this approach loses most of its effectiveness.
Corporate beneficiaries will not receive the non-refundable credits available to individual beneficiaries. The reason is deliberate. If companies could claim those credits, they could convert non-refundable credits into refundable franking credits and effectively recover the minimum tax. The Government specifically closed that pathway.
ATO data from 2022-23 shows around 80,000 companies received distributions from discretionary trusts. Of those, 83% had no evidence of business activity, suggesting most operate primarily for tax deferral rather than genuine commercial purposes.
Trustees can still distribute to a bucket company. But once the trustee has already paid 30% on the income before it is distributed, the tax advantage of doing so disappears almost entirely for most structures. Bucket company arrangements in discretionary trusts need an urgent review before 2028, not later.
The Restructure Window That Opens a Full Year Before the Tax Starts
Alongside the minimum tax, the Government is providing a three-year rollover relief window from 1 July 2027 to 30 June 2030. The window opens a full year before the minimum tax takes effect, giving eligible businesses and families time to restructure without triggering income tax or CGT consequences.
During this period, small businesses and others can move out of a discretionary trust into a company or a fixed trust without triggering income tax or capital gains tax consequences at the federal level.
Normally, transferring assets out of a trust carries significant CGT implications. The rollover relief removes that federal tax exposure for eligible restructures completed within the window.
One critical limit on the rollover: it does not cover state taxes. Transfer duty (stamp duty) may still apply when property is moved between entities, depending on your state. Do not assume the restructure is tax-free end to end without checking the state duty position with your adviser first. Some states may announce their own concessions; none have been confirmed as of July 2026.
Restructuring into a company gives small businesses access to the 25% corporate tax rate (available for businesses with aggregated annual turnover under $50 million and no more than 80% of assessable income being passive income). Companies also offer cleaner ways to retain earnings and access debt financing.
Restructuring into a fixed trust keeps the trust form while removing income discretion. Beneficiaries get defined entitlements each year rather than amounts set at the trustee’s judgment.
From 1 January 2027, the Australian Small Business and Family Enterprise Ombudsman will be available to help businesses understand their restructuring options before the window opens.
Which Trusts Sit Outside These Rules
The minimum tax applies specifically to discretionary trusts. Several trust types fall completely outside its scope:
- Fixed trusts and widely held trusts (including most managed investment trusts)
- Complying superannuation funds
- Special disability trusts
- Deceased estates
- Charitable trusts
Certain income categories are also excluded:
- Primary production income (important for farming families)
- Income relating to certain vulnerable minors
- Amounts subject to non-resident withholding tax
- Income from testamentary trusts established for genuine testamentary purposes
On testamentary trusts specifically: following the Government’s 18 June 2026 consultation update, the testamentary trust exemption was broadened beyond just trusts in existence at Budget night. All testamentary trusts established for genuine testamentary purposes are now excluded. For testamentary trusts established on or after 1 July 2028, the exclusion applies where the trust can only benefit individuals and income-tax-exempt entities.
If your structure falls into one of these categories, the minimum tax does not apply directly to you. But it is still worth confirming your trust’s exact classification with a registered tax adviser before assuming you are in the clear. The detail of how some exclusions apply (particularly around primary production income where the farm is held in one trust but the business operates in another) remains subject to consultation.
What You Should Be Thinking About Now
The minimum tax does not start until 1 July 2028. The restructuring window opens 1 July 2027. That gives you runway, but not unlimited runway, particularly given how long advice, entity set-up, and asset transfers can take when done properly.
A few things worth working through with your accountant before then:
- Model your trust distributions under a 30% floor. Run the numbers on what your family’s after-tax position looks like under the new rules. For some trusts, the change is minimal. For others, particularly those relying heavily on income splitting to low-rate beneficiaries, the impact is material.
- Review bucket company arrangements urgently. The double-taxation outcome for corporate beneficiaries is severe. If your structure routes distributions through a company for tax deferral, that logic largely stops working after 1 July 2028.
- Assess the rollover window seriously. The three-year rollover is a real opportunity, not a formality. But it requires advice, time, and clean record-keeping to execute properly. Starting that review in 2027 under time pressure is a worse outcome than starting now.
- Check your testamentary trust and estate plan. If your will includes a testamentary trust, confirm whether its structure qualifies under the broadened exemption. Get this confirmed in writing from your solicitor before legislation is finalised.
- Do not forget state stamp duty. Any restructure involving property transfers between entities may attract state duty. Factor this into the cost-benefit analysis of whether restructuring makes sense for your situation.
Read our detailed guide on what the new discretionary trust tax rules mean for Australian investors for more context on how this measure interacts with the CGT changes.
Book a strategy session with Number Solutions to model your trust’s position and understand whether the rollover window is worth using before 1 July 2027.
Frequently Asked Questions
Does this affect my SMSF or superannuation?
No. Complying superannuation funds including SMSFs are specifically excluded from the 30% minimum tax. SMSFs retain their existing one-third CGT concession on directly held assets. If your SMSF holds assets through a discretionary trust, the trust itself may be caught, so confirm the structure with an SMSF-specialist adviser.
If we already pay our beneficiaries at the 47% top marginal rate, does the 30% minimum tax change anything for us?
Very little, in terms of total tax paid. The mechanism shifts where the tax is paid, from the beneficiary’s own return to a trustee-level payment, but the overall amount is similar since beneficiaries receive a non-refundable credit that offsets their own liability. The main change for high-rate trusts is administrative complexity and timing of payment.
Can I keep distributing to family members in low-tax years without any impact? This is precisely the strategy the minimum tax is designed to eliminate. From 1 July 2028, even if you distribute to a family member who would otherwise pay 0-15% tax on their share, the trust still pays 30% first. The non-refundable credit means the beneficiary cannot get a refund of the difference. The income-splitting benefit for low-rate beneficiaries largely disappears.
What happens to franking credits flowing through the trust? Trustees who receive franked dividends must use those franking credits to offset the trustee’s 30% minimum tax liability. Where franking credits exceed the minimum tax, the treatment of the excess is still being settled through consultation. This is particularly relevant for trusts with large holdings of franked shares or managed funds. Monitor the ATO’s reform page for updates as details are released.
Is a company always better than a trust under the new rules? Not necessarily. A company paying 25% or 30% looks attractive compared to a trust paying 30% minimum tax. But a company has no ability to vary distributions between shareholders, loses the asset protection and succession flexibility a trust provides, and has its own set of compliance costs. Restructuring into a company is worth serious consideration for many structures, but it is not the automatic answer for every situation.
When will the legislation actually be introduced? Unlike the CGT and negative gearing reforms that passed on 25 June 2026, the discretionary trust minimum tax is in a separate second Bill. As of July 2026, no legislation has been introduced and a consultation paper is still expected before a draft Bill is released. The Government has flagged it expects to table the Bill later in 2026. Keep an eye on the ATO’s reform page for the latest.
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