30% Minimum Tax on Discretionary Trusts: What Trustees Should Know

The 2026-27 Federal Budget, handed down on 12 May 2026, announced a 30% minimum tax on discretionary trusts, proposed to start from 1 July 2028. This is a proposal, not a change to the law. Treasury has since consulted on how it would work, but no bill has been introduced into Parliament, and the design could still change. For trustees and beneficiaries of family trusts, the sensible response now is to understand what has actually been announced, not assume it already applies.

What the Government has announced

The proposal would require the trustee of a discretionary trust to pay tax of 30% on the trust's taxable income, unless a higher rate already applies. That differs from today, where the trustee pays tax only on income retained in the trust, while distributed income is taxed in each beneficiary's own hands at their marginal rate.

Beneficiaries would still declare distributions in their own return. Non-corporate beneficiaries would get a non-refundable credit for the 30% the trustee already paid, so the same income is not taxed twice. A beneficiary on a marginal rate above 30% would pay top-up tax on the difference; one below 30% would lose the excess credit rather than have it refunded.

Corporate beneficiaries are treated differently: they get no credit for tax the trustee has paid, which the Government says is meant to stop a "bucket company" being used to sidestep the minimum tax.

Which trusts are actually in scope

The measure targets discretionary trusts specifically. Several other trust types are proposed to sit outside it entirely:

• Fixed trusts and widely held trusts
• Complying superannuation funds
• Special disability trusts
• Deceased estates and charitable trusts
• Testamentary trusts, and discretionary trusts established for genuine testamentary purposes

Certain income is also proposed to be carved out, including primary production income, income relating to vulnerable minors, and amounts already subject to non-resident withholding tax. A standard family trust holding investments, a rental property or a business is squarely what this proposal targets. A testamentary trust under a will, or a fixed trust with defined unit entitlements, currently sits outside its scope.

Why the Government says this is needed

The Budget materials cite the scale of discretionary trust use as the rationale. There are now more than one million trusts in Australia, and around 840,000 of those, roughly 80%, are discretionary. In the 2022-23 income year, discretionary trusts distributed $142.4 billion in income to other entities.

The stated concern is "income splitting": a trustee allocating income to family members on lower marginal rates while the economic benefit often stays with the primary earner. Treasury analysis found that in 2022-23, families using a discretionary trust faced an average tax rate around 4 percentage points lower than similar-income families that did not. The proposal is framed as bringing trust income closer to what an equivalent wage earner already pays.

The proposed rollover relief

The proposal also includes a rollover intended to let a business or family restructure out of a discretionary trust into a company or fixed trust without extra income tax or capital gains tax as a direct result of that move. It is proposed to run for three years, from 1 July 2027 to 30 June 2030, starting a year ahead of the minimum tax itself.

Two caveats matter. The relief is federal only: it does not extend to state and territory stamp duty, which each jurisdiction sets separately and can still apply regardless of the federal relief. And restructuring will not suit every trust; a company, for instance, changes how earnings are retained and how finance is accessed.

Where this sits in the legislative process today

The language used to describe this measure matters. As at the date of this article:

• 12 May 2026: announced as a 2026-27 Federal Budget measure
• 8 to 31 July 2026: Treasury consultation on implementation, now closed
• No bill has been introduced into Parliament
• Proposed start date, if legislated: 1 July 2028

Announced and legislated are two different things. A Budget announcement sets out the Government's intention, but has no legal effect on its own. Design details raised in consultation, including how the tax would be collected and how excess franking credits are handled, are still being worked through, and a bill has not yet been drafted. That detail, and in principle the timing, could still shift.

What trustees and beneficiaries should do now

With a 1 July 2028 start date proposed and no bill before Parliament, there is no compliance step required today. But a discretionary trust with a multi-year horizon, particularly one running a family business or a sizeable investment portfolio, is worth reviewing against this proposal well before any legislation passes.

That means understanding how your trust currently distributes income and to whom, and whether a different structure would suit your circumstances if the measure proceeds as announced. Our article on why you might set up a trust covers that broader decision if you are starting from scratch.

We are following this measure through consultation and, if it proceeds, through its passage into legislation. If you hold assets in a discretionary trust or are considering setting one up, talk through what this proposal could mean for your structure before assuming today's rules will still apply in 2028. Get in touch to discuss your circumstances.

Disclaimer: This article contains general information only and does not constitute financial, legal or tax advice. It has been prepared without regard to your objectives, financial situation or needs. Tax and superannuation laws change frequently, and the information in this article may not reflect the current law or may become inaccurate over time. Before acting on anything in this article, you should consider its appropriateness to your circumstances and seek advice from a registered tax agent or qualified adviser.