If you run a business or hold investments through a discretionary trust, the 2026 Federal Budget has just changed your planning horizon significantly.
The government will introduce a minimum tax of 30% on discretionary trusts from 1 July 2028, with rollover relief provided for three years from 1 July 2027 to assist small businesses and others that wish to restructure.
Should You Restructure? The Honest Answer Is: It Depends
Here is a straightforward breakdown based on the most common situations.
Trust situation | Likely impact from 2028 | Restructure urgency |
All beneficiaries are already on 30%+ marginal rates | Minimal to none | Low |
Distributions going to low-income family members | Significant credits are non-refundable | High |
Bucket company strategy in use | Effectively eliminated | Very high |
Primary production income only | Excluded from minimum tax | Low |
Widely held or fixed trust | Not caught by the reform | None |
Discretionary testamentary trust existing as of 12 May 2026 | Income from assets of testamentary trusts that existed on 12 May 2026 is excluded | Monitor only |
The Case for Waiting
Most clients should not restructure until the legislation is finalised. The reform was announced on Budget night but has not yet passed Parliament in final form. The detailed interaction rules, particularly around stamp duty, how franking credits inside the trust are treated, and the exact mechanics of the rollover, are still being legislated.
Making an irreversible structural change based on an announced but unlegislated measure carries real risk. The final rules may differ from the announced framework in ways that affect which path makes sense for your specific trust.
The Case for Acting Early
Decisions made earlier will benefit from more planning time and potentially better CGT outcomes. It is not indefinite, and the CGT changes announced in the Budget, applying from 1 July 2027, mean that restructuring sooner may produce a better outcome than waiting.
This matters because the CGT reform and the trust minimum tax interact. Assets transferred out of a trust after 1 July 2027 will have their post-2027 gains subject to the new CGT indexation regime rather than the 50% discount.
The interaction between the CGT reform and the rollover relief is still subject to consultation and has not yet been legislated in detail. However, restructuring sooner in the window is likely to produce a better CGT outcome than waiting, and timing within the window matters.
How the 30% Minimum Tax Works
The minimum tax will apply at the trustee level. Non-corporate beneficiaries who are presently entitled to a share of the net income of the trust will be able to claim a non-refundable income tax credit for the tax paid by the trustee on that income.
Here is what that means in practice. The trustee pays 30% of the trust’s taxable income first. Then individual beneficiaries receive a credit for that tax paid, which they can use to reduce their own personal tax.
But the credit is non-refundable. If a beneficiary’s marginal rate is lower than 30%, they cannot claim the difference back.
A beneficiary on a 0% or 16% marginal rate effectively pays 30% tax on the trust distribution, with no refund of the excess credit.
So the core income-splitting advantage, distributing to a spouse on a lower income or an adult child studying full-time, is largely removed. The minimum floor is 30% regardless of who receives the distribution.
Who Is Not Affected
Not every trust structure gets caught. The minimum tax will not apply to fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates, and charitable trusts.
Some types of income are also excluded, including primary production income, certain income relating to vulnerable minors, amounts subject to non-resident withholding tax, and income from assets of testamentary trusts that existed at the time of announcement on 12 May 2026.
Broadly, if beneficiaries’ marginal tax rates before the distribution were already 30% or more, the measure should not result in more tax paid overall.
So if everyone who receives a distribution from your trust already earns enough to sit in the 30% or higher marginal tax bracket anyway, the new minimum tax changes nothing for you. The trust’s current outcome and the post-2028 outcome are the same.
The Death of the Bucket Company Strategy
This is arguably the sharpest edge of the reform, and it catches many business owners by surprise.
The exclusion of corporate beneficiaries from receiving the tax credit could spell the end of bucket companies.
Under the current system, distributing trust income to a corporate beneficiary taxed at 25% or 30% has been a common way to cap the tax rate on trust income and retain earnings inside a company. From 1 July 2028, that strategy breaks down.
Corporate beneficiaries cannot claim credits for the trustee-level minimum tax. This means distributing trust income to a bucket company after 1 July 2028 may result in the same income being taxed twice with no relief.
If your trust structure currently relies on distributing to a company to manage the tax rate on retained earnings, this is the scenario that requires the most urgent review.
The Rollover Window: What It Offers and What It Does Not
Expanded rollover relief will be available for three years from 1 July 2027, allowing eligible taxpayers, including small businesses, to transfer assets out of discretionary trusts into companies or fixed trusts without triggering income tax consequences, including CGT.
This rollover relief window closes on 30 June 2030.
That is a meaningful concession. Normally, transferring assets out of a trust structure triggers a CGT event, which could generate a large and immediate tax bill. The rollover relief removes that barrier during the window.
But there are things the rollover relief does not fix automatically.
Stamp duty implications still need to be considered. The interaction of the rollover relief with existing small business CGT rollovers and other CGT provisions is yet to be released in detail.
State-based stamp duty can apply when property transfers between entities, even with federal CGT rollover relief. In New South Wales and Victoria particularly, transferring real property out of a trust and into a company or individual’s name can attract significant duty. That cost needs to be modelled before any restructuring decision is made.
The Australian Small Business and Family Enterprise Ombudsman will support small businesses through restructure decisions from 1 January 2027, and ASIC will provide specific arrangements to support incorporation.
Related Articles:
