As part of the 2026–2027 Federal Budget, the Government plans to introduce a new 30% minimum tax on discretionary trusts from the 2028–2029 income year. If your business operates through a discretionary trust, now is the time to start planning.
What is a discretionary trust?
A discretionary trust is a common business and investment structure where a trustee holds assets and earns income on behalf of a group of potential beneficiaries, often family members. They are widely used in Australia for asset protection, succession planning and the flexibility to direct income to family members in lower tax brackets. Australia has over one million trusts, with around 80% being discretionary trusts, and approximately 350,000 active small businesses operating through one.
What’s changing?
From 1 July 2028, trustees will pay a minimum 30% tax on the trust’s taxable income, aligning the tax outcome with that of salary and wage earners who pay a 30% marginal rate on incomes between $45,001 and $135,000. Beneficiaries will still declare trust income in their own tax returns, but non-corporate beneficiaries will receive non-refundable credits for tax paid by the trustee. Corporate (“bucket company”) beneficiaries won’t receive these credits. Where a trust already distributes to beneficiaries on a marginal tax rate of 30% or more, no additional tax will arise overall. The minimum tax won’t apply to fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates or charitable trusts. Excluded income types include primary production income, income relating to vulnerable minors, amounts subject to non-resident withholding tax and income from discretionary testamentary trusts that existed at the time of the announcement.
Example
In 2028–29, Kurt and Loretta each earn $300,000 operating small businesses. Loretta provides her services through a company. Loretta pays herself a salary as an employee of $100,000 and retains the remaining income in the company to build the business. The company pays the small business rate of 25 per cent on this profit. Overall, $72,002 of tax will be paid. Kurt provides his services through a family discretionary trust with himself as the trustee. The trust pays Kurt a salary of $100,000 as an employee and has remaining taxable income of $200,000. Kurt makes four of his extended family members, who have no other income, each entitled to $50,000, while retaining the money in the trust to build the business. In total, Kurt’s family will pay $42,010 in tax. With a minimum tax in place, the trust would pay 30 per cent tax on the $200,000 of income not paid as wages, regardless of how this income was distributed. Overall, $86,002 of tax will be paid if Kurt does not change the distributions made to his family members. Kurt would pay less tax operating through a company than a trust, once the minimum tax is in place, by accessing the small business tax rate. Source: Budget 2026–27 Minimum tax on discretionary trusts
Time to review your structure?
If you run your business through a discretionary trust, now’s the time to review your structure. The Government plans to provide expanded rollover relief for three years from 1 July 2027 to assist businesses restructuring out of discretionary trusts, including relief from CGT. You may also wish to consider employing beneficiaries who work in the business, and paying salary or wages rather than trust distributions.
Contact our office to review whether your current trust structure remains the best fit for your business and to discuss the most tax-effective path forward. Our family businesses and high net worth advisory services include trust structure reviews and restructuring advice tailored to your specific situation.
Speak to one of our accountants if you have any questions about the changes in tax for 2026.
Frequently asked questions
What is the proposed minimum tax on discretionary trusts?
From 1 July 2028, trustees of discretionary trusts will be required to pay a minimum 30% tax on the trust’s taxable income. The measure is part of the 2026–2027 Federal Budget and is designed to align the tax treatment of trust income with that of salary and wage earners in the same income bracket.
When does this change take effect?
The minimum tax is proposed to apply from the 2028–2029 income year so there is still time to plan, but the window to restructure without significant tax consequences is limited. The Government has announced expanded rollover relief, including CGT relief, for businesses that restructure out of a discretionary trust between 1 July 2027 and 30 June 2030.
Will beneficiaries still need to declare trust income in their tax returns?
Yes. Beneficiaries will continue to include trust distributions in their own tax returns. However, non-corporate beneficiaries will receive a non-refundable tax credit for the minimum tax paid by the trustee. Note that corporate (bucket company) beneficiaries will not receive these credits, which significantly changes the tax economics of that distribution strategy.
Are all trusts affected by this measure?
No. The minimum tax applies specifically to discretionary trusts. Fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts are all excluded. Certain types of income are also excluded, including primary production income, income relating to vulnerable minors, amounts subject to non-resident withholding tax, and income from discretionary testamentary trusts that existed at the time of the announcement.
If my trust already distributes to beneficiaries on a 30% marginal rate or above, will this affect me?
Not in terms of additional tax. Where distributions are made to beneficiaries whose marginal rate is already 30% or higher, no extra tax liability arises from the minimum tax. The impact is felt most by trusts that have historically directed income to low-income family members to reduce the overall tax burden.
Should I restructure out of my discretionary trust?
That depends on your specific circumstances. A company structure may become more tax-effective for some businesses once the minimum tax is in place, particularly those accessing the small business tax rate of 25%. Employing beneficiaries who work in the business and paying wages rather than distributions is another option worth considering. The right answer will vary, and it’s worth reviewing your structure sooner rather than later. Contact our office to talk through the options before the relief window closes.
