Proposed 30% Minimum Tax on Discretionary Trusts: What It Could Mean for Family GroupsProposed 30% Minimum Tax on Discretionary Trusts: What It Could Mean for Family Groups

Discretionary trusts often referred to as family trusts have long been a popular structure for Australian families and businesses. They can be used to operate family businesses, hold investments and support succession planning, while also offering flexibility and potential asset protection and estate planning benefits.

However, a proposal announced in the 2026–27 Federal Budget could significantly change the taxation of some discretionary trusts, particularly those that rely on income-splitting strategies or distributions to corporate beneficiaries.

From 1 July 2028, the Government proposes to introduce a minimum 30% tax on the taxable income of discretionary trusts.

The Government says the measure is intended to bring the tax treatment of trust income more closely into line with salary and wage income, while limiting opportunities to split income between family members. 

The proposal has attracted concerns from professional bodies, business groups and tax advisers about the additional complexity and compliance costs it could create for genuine family businesses and investment structures.

How Would the 30% Minimum Tax Work?

Under the proposal, the trustee would generally be responsible for paying tax of at least 30% on the trust’s taxable income.

Where income is distributed to an individual or certain other non-corporate beneficiaries, the beneficiary would generally receive a non-refundable tax offset for the tax already paid by the trustee. This is designed to recognise the tax paid at the trust level while preserving the effect of the proposed 30% minimum rate.

Not every trust would be caught by the new rules.

The Government has indicated that exclusions would apply to a range of structures, including fixed trusts, widely held trusts, complying superannuation funds, charitable trusts, deceased estates, special disability trusts and genuine testamentary trusts. Primary production income and certain income relating to vulnerable minors would also be excluded.

The Government expects more than 90% of small businesses will not be affected. Even so, there are some important implications for family groups that currently operate through discretionary trusts.

Distributions to Companies Could Be a Key Issue

One area that could be particularly affected is the use of companies as beneficiaries of family trusts.

Many family groups currently distribute some trust income to a corporate beneficiary. This can provide flexibility when managing cash flow, retaining profits within a business structure or setting aside funds for future investment and growth.

Under the proposed rules, however, a corporate beneficiary would not receive a tax offset for the tax already paid by the trustee.

In practice, this means income distributed from a discretionary trust to a company could, in many cases, effectively be taxed twice. This could significantly change the way some family groups approach trust distributions and broader tax planning.

The proposed minimum tax could also make it more difficult for some groups to fully utilise existing tax losses.

Exactly how significant these changes would be depends on the circumstances of each group, but the proposal is likely to reduce some of the flexibility currently available when managing taxable income across more complex family structures.

Restructuring Possible with Careful Planning

The Government has also proposed a temporary three-year rollover period beginning on 1 July 2027.

The rollover is intended to give affected groups an opportunity to move into alternative structures, such as companies or fixed trusts, without immediately triggering income tax or capital gains tax consequences subject to satisfying the eligibility requirements that are ultimately enacted.

That doesn’t necessarily mean restructuring will be simple or cost-free.

Depending on the circumstances, changing a business or investment structure can raise other issues, including stamp duty, financing and loan approvals, existing contracts, licensing requirements and professional costs.

For this reason, any restructure needs to be considered in the context of the group’s broader commercial and financial position rather than looking at the proposed tax changes in isolation.

The Proposal Isn’t Law Yet

These rules are not yet final.

The Treasury released a consultation paper in July 2026 seeking feedback on how the proposed minimum tax should operate in practice. Legislation has not yet been introduced, and some aspects of the proposal could change before becoming law.

For most groups, this means there is no need to rush into restructuring based on the announcement alone.

Instead, now is a good time to understand how your existing structure could be affected, keep an eye on further developments and identify any areas that may need attention if the proposal proceeds in its current form.

What Should Family Groups Do Now?

Discretionary trusts aren’t used purely for tax purposes. For many families, they continue to play an important role in asset protection, succession planning, investment ownership and the operation of family businesses.

The proposed 30% minimum tax doesn’t remove those benefits or prevent discretionary trusts from continuing to be used. It could, however, change the tax outcomes for some groups particularly those with more complex structures or those that regularly distribute income to corporate beneficiaries.

With the proposed commencement date of 1 July 2028 still some time away, there is an opportunity to consider the potential impact without making premature changes.

As the proposal develops, we can help you assess what the new rules could mean for your business or investment structure and whether any planning or restructuring should be considered.