On 12 May 2026, Federal Treasurer Jim Chalmers announced sweeping changes to the Australian tax landscape. We provided a summary of those announcements in an article published immediately after the budget. However, we will now also publish separate articles for the each of the proposed changes to keep you updated on the status of each proposal.
Discretionary Trusts - 30% minimum tax
The 2026-27 Federal Budget included one of the most significant proposed changes to the taxation of discretionary trusts in many years.
Under the proposal, discretionary trusts will become subject to a minimum tax rate of 30% from 1 July 2028.
While discretionary trusts will continue to be available for legitimate purposes such as asset protection, succession planning and operating family businesses, the proposed rules could significantly reduce one of their traditional tax benefits – the ability to distribute income to beneficiaries on different marginal rates.
How will the proposed 30% minimum tax work?
Under the current system, a discretionary trust generally does not pay tax itself where its income is distributed to beneficiaries. Instead, the beneficiaries include their share of the trust’s income in their own tax returns and pay tax at their applicable tax rates.
Under the proposed new rules, the trustee will be required to pay tax at a minimum rate of 30% on the taxable income of the discretionary trust.
Individual beneficiaries will still include their trust distributions in their own tax returns. However, they will generally receive a non-refundable tax credit for the tax already paid by the trustee.
In practical terms, this means that distributing income to a beneficiary whose marginal rate is below 30% may no longer provide the same tax benefit that it does under the current rules.
For example, if trust income is distributed to an adult beneficiary who would otherwise pay tax at a rate below 30%, the trustee-level tax would effectively increase the overall tax payable on that income to a minimum of 30%.
Where the beneficiary’s tax rate is higher than 30%, the credit for tax paid by the trustee would generally reduce the beneficiary’s additional tax liability.
What about distributions to companies?
This is potentially one of the most significant areas of concern with the proposal.
The Government has indicated that corporate beneficiaries will not receive a credit for the 30% tax paid by the trustee.
This will have significant implications for the common practice of distributing trust income to a private company (or “bucket company”).
The precise treatment of corporate beneficiaries is one of the issues being considered as part of the Treasury consultation process.
As such, businesses and family groups currently using corporate beneficiaries will need to pay particular attention to the final legislation.
Which trusts will be affected?
The proposed minimum tax is primarily directed at discretionary trusts, commonly referred to as family trusts.
The Government has indicated that a number of trusts and types of income will be excluded, including:
- fixed trusts
- widely held trusts
- complying superannuation funds
- special disability trusts
- deceased estates
- charitable trusts
- testamentary trusts established for genuine testamentary purposes
- primary production income
- certain income relating to vulnerable minors; and
- amounts subject to non-resident withholding tax.
Opportunity to restructure
Recognising that the changes could make discretionary trusts less attractive for some businesses and investment structures, the Government has also proposed expanded rollover relief for three years from 1 July 2027.
The intention is to allow eligible businesses and other taxpayers to restructure from a discretionary trust into an alternative structure, such as a company or a fixed trust, with relief from some of the immediate tax consequences, including capital gains tax.
Importantly, this does not necessarily mean that every discretionary trust should be restructured.
Trusts can provide substantial non-tax benefits, including asset protection, succession planning and flexibility in ownership of family businesses and investments. There may also be other tax and commercial costs with restructuring including potential transfer/stamp duty and other state taxes.
The final details of the rollover provisions are also still subject to consultation.
What should you do now?
At this stage, we do not recommend making significant changes to existing trust structures solely because of the Budget announcement.
The Government’s proposal is significant, but the detailed legislation for the 30% discretionary trust tax has not yet been released and a number of important issues remain unresolved.
Once the final legislation is available, existing structures will need to be reviewed individually. For some taxpayers, continuing to operate through a discretionary trust may remain appropriate. For others, the proposed three-year restructuring window may provide an opportunity to consider whether a company, fixed trust or another structure is more suitable.
With the proposed restructuring concessions commencing from 1 July 2027 and the minimum trust tax proposed to commence from 1 July 2028, there should be time to carefully assess the options rather than making premature changes.
We will continue to monitor the legislation as it develops and will contact affected clients once there is sufficient certainty to properly assess the impact on their individual circumstances.
If you would like to discuss the tax implications of the budget proposals, please call us on (07) 56656469.
DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.
Jeanette has over 20 years experience as an accountant in public practice. She is a Chartered Accountant, registered tax agent and accredited SMSF Association advisor. When she is not helping business owners grow their empires, you will likely find her out running on the trails or at the gym. Book in to see Jeanette today.
