Discretionary trust tax changes: the proposed 30% minimum tax from 2028

Of the 2026 Budget measures, this is one of the most misunderstood. Some families are being told to wind up their trusts now. That's a mistake. The proposal is a Bill. It can change, it might not pass, and it already includes an election and a rollover window designed so that many families won't need to restructure at all.

This guide sets out exactly where the proposal is up to, what it would do, who it would and wouldn't affect, the options it gives you, and the watch-and-hold approach we're taking for every trust client. Status is as at 18 October 2026. We'll update this page as the Bill moves.

Key point: The CGT discount, minimum tax on capital gains and pre-CGT changes from 1 July 2027 are law and already apply to trusts. The 30% minimum tax on discretionary trusts from 1 July 2028 is not law. Don't confuse the two.

Where is the discretionary trust tax up to?

Until Royal Assent, every detail below is "as introduced".

What would the 30% minimum tax on trusts do?

As introduced, the Bill would:

• make the trustee pay a 30% minimum tax on the taxable income of a discretionary trust, from 1 July 2028;
• give beneficiaries other than companies a non-refundable tax offset for the tax the trustee has paid on their share;
• give corporate beneficiaries no offset;
• exclude fixed trusts (with a new definition of fixed trust), charitable trusts, special disability trusts, superannuation funds, deceased estates and discretionary testamentary trusts set up for genuine testamentary purposes;
• exclude primary production income and certain income relating to vulnerable minors;
• exempt distributions to registered charities and deductible gift recipients, and distributions to other tax-exempt bodies such as sporting clubs up to a reasonable cap;
• provide expanded rollover relief from 1 July 2027 for people restructuring out of a discretionary trust into, for example, a company or fixed trust;
• create an election: a trust that nominates its beneficiaries upfront and keeps distributing to them would be exempt from the minimum tax, without restructuring and without limiting the trustee's discretion.

The Government says more than 90% of small businesses won't be affected in any given year. The 30% rate was chosen to match the marginal rate for workers earning between $45,000 and $135,000.

Why "non-refundable" is the key word

A non-refundable offset can reduce your tax to zero but can't produce a refund. So a beneficiary whose own tax on their distribution is less than 30% loses the difference. In effect, trust income would be taxed at no less than 30%, whoever receives it. Beneficiaries already paying 30% or more on their share would see little change.

Worked example: how much more would a family pay?

Hypothetical, rounded. Uses 2026–27 resident rates for simplicity and ignores the Medicare levy and other offsets. The Bill may change.

A family trust earns $150,000 of net income from a share portfolio and distributes $75,000 each to two adult children at university who have no other income.

Now change one fact: the trust distributes the $150,000 to a parent already on the top marginal rate. The parent's own tax on it exceeds 30%, so the trustee's tax is fully absorbed by their offset. The minimum tax costs nothing extra; the family was already paying more than 30%.

That's the pattern. The proposed tax bites hardest on trusts that distribute to adult family members on low incomes: students, non-working spouses, retired parents. Distributions to under-18s are already taxed at penalty rates under existing rules.

Who would be affected, and who wouldn't?

What options would families have?

If the Bill passes in its current form, most families will choose one of five paths. None needs to be taken now.

1. Keep the trust and accept the tax. For trusts whose beneficiaries already pay 30% or more, the cost may be small. The asset protection and flexibility remain.
2. Make the election. Nominate the beneficiaries upfront and keep distributing to them. The Government says this isn't expected to trigger state stamp duty, but that ultimately depends on each state's law and your deed. Whether your deed allows it, and who should be nominated, are questions for us and your solicitor.
3. Pay wages instead of distributions. Where a business runs through the trust and family members genuinely work in it, a market-rate wage is taxed as their income in the normal way. It must be real work at a reasonable rate.
4. Restructure using the rollover. Move the business or investments into a company or fixed trust within the proposed window from 1 July 2027. Rollover relief is federal. It does nothing about state stamp duty on transferring land or business assets, which can be the largest cost. See our page on state taxes.
5. Wind up the trust. Usually the most expensive option. It can trigger CGT, stamp duty and the loss of asset protection, and it can't be reversed if the law changes.

Our restructure rollover agent compares the rollover options for a client's specific assets and entities; an accountant checks the result and the duty position before anything is put to the client.

What should trustees do now? Our watch-and-hold approach

This is the protocol we follow for every discretionary trust we act for.

1. Tag the trust. Every family trust goes on our legislation watch list, so we tell you when the Bill changes or passes.
2. Model the proposal. We work out what the trust's last two years would have cost under the proposed rules. That tells you whether this is a $500 question or a $50,000 one.
3. Read the deed. Who is a beneficiary, what the variation power allows, who controls the trust, when it vests. If the election becomes law, the deed must let you make it. Our trust deed review agent summarises the deed; your accountant and a solicitor confirm what it allows.
4. Keep running the trust properly. Sign distribution resolutions by 30 June each year, pay out or document entitlements, and keep section 100A risk in check. See trust distributions and section 100A.
5. Make the 2027 decisions that are law. The CGT changes from 1 July 2027 already apply to trust assets. Gather the evidence of value at 1 July 2027 for the trust's property, shares and business interests. See the CGT discount changes.
6. Don't restructure on the Bill alone. If a restructure makes sense for other reasons, for example asset protection or succession, it can still go ahead on its own merits, ideally before 30 June 2027 while the 50% CGT discount applies to the transfer.

What questions are still open?

The Bill answers some questions the Budget left open, but not all. These are the ones we're watching, because each could change the advice for a particular family:

• Capital gains. How a trust's capital gains sit within the minimum tax, alongside the new CGT rules from 1 July 2027. The Bill includes clarifications of how the CGT reforms apply to trust structures; the detail needs to be read against the final text.
• Franking credits. How franked dividends received by the trust interact with the trustee's 30% tax and the beneficiaries' offsets.
• Corporate beneficiaries. Whether distributions to a company end up taxed twice in practice, or whether the company's own tax and franking accounts absorb it.
• The fixed trust definition. Which family unit trusts will qualify.
• The election. Who can be nominated, whether nominations can ever change, what happens if the trustee distributes to someone outside the list, and when the election must be made.
• The rollover. Which assets and entities qualify, what integrity rules apply, and how it interacts with existing rollovers.
• State duty. Whether any state or territory offers matching duty relief for restructures. None had announced it when this page was written, as far as we're aware.
• The Senate. Whether the Bill passes, and in what form.

Each of these could move a family from "keep the trust" to "restructure", or the reverse. That's why we model now and decide later.

Should I still set up a new family trust?

Possibly. A discretionary trust still does two things the proposal doesn't touch: it keeps assets out of any one person's name, and it lets the trustee decide each year who benefits. For asset protection and succession, those can matter more than the tax rate.

What changes is the comparison. If the Bill passes as introduced, a new trust that would mainly distribute to adult family members on low incomes would save less tax than before, and a company or fixed trust may suit some families better. If you're setting up a structure for a new business or investment now, we model it both ways: under current law and under the Bill. Our business structures service covers that choice, and our guide to company vs trust vs sole trader sets out the trade-offs.

Mistakes we're already seeing

• Winding up trusts in 2026. That triggers tax now to avoid a tax that may never arrive in this form.
• Assuming the rollover covers stamp duty. It doesn't.
• Treating every unit trust as a fixed trust. The definition is technical, and many family unit trusts won't qualify.
• Ignoring the trust's 2027 CGT position. The trust tax is a Bill; the CGT changes are law and apply to trusts from 1 July 2027.
• Assuming a bucket company fixes it. As introduced, companies get no offset.

We set up and look after family trusts every year. See our family trust service, the family trust explained guide, or the overview of all the 30 June 2027 tax changes.

General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.