Discretionary Trust Tax Changes Australia 2028
Discretionary Trust Tax Changes Australia: 30% Minimum Tax Explained
Australia’s 2026-27 Budget proposes a 30% minimum tax on discretionary trusts from 1 July 2028, with some exceptions. The reform targets discretionary trust income while preserving legitimate trust uses such as succession planning and asset protection.
This guide explains who may be affected, which trusts are excluded, how rollover relief works, and what family trusts, business owners, property investors and migrants should review before the start date.
Key takeaways
- Start date: the discretionary trust minimum tax is proposed to apply from 1 July 2028.
- Minimum rate: the proposed minimum rate is 30% on discretionary trust income.
- Rollover relief: expanded rollover relief will run for three tax years from 1 July 2027.
- Exclusions: fixed trusts, widely held trusts, charitable trusts, special disability trusts, complying super funds and deceased estates are listed as excluded categories.
- Action point: trustees should review distributions, family trust elections, bucket companies, non-resident beneficiaries and trust structures before 2028.
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Last verified: 12 May 2026. Main official references: Australian Government Budget tax reform, Prime Minister tax reform statement and ATO family trusts guidance.
What are the discretionary trust tax changes in Australia?
The discretionary trust tax change is a proposed 30% minimum tax on discretionary trust income from 1 July 2028. The Government says the reform is intended to align tax paid through discretionary trusts more closely with tax rates paid by workers and families earning wages.
The Budget tax reform page states that the Government will introduce a minimum tax of 30% on discretionary trusts from 1 July 2028, with some exceptions. The Prime Minister’s tax reform statement says the measure is designed to create a fairer and more sustainable rate of tax paid on discretionary trust income.
| Item | Budget position | Practical meaning |
|---|---|---|
| Minimum tax rate | 30% | Low-tax distribution outcomes may become less valuable. |
| Start date | 1 July 2028 | Trustees have time to review structures before the start date. |
| Rollover relief | Three tax years from 1 July 2027 | Some restructuring may be supported before the rules begin. |
| Policy target | Discretionary trusts | Fixed and widely held trusts are treated differently from discretionary trusts. |
Who may be affected by the 30% discretionary trust minimum tax?
The groups most likely to review their position include family business trusts, investment trusts, property-holding trusts, professional groups, high-income families and private groups using discretionary distributions. The issue is not whether trusts can still exist, but whether income distribution strategies still produce the same tax outcome.
The Prime Minister’s statement says discretionary trusts can be used for legitimate reasons such as succession planning and asset protection, but also says some Australians use discretionary trusts to plan tax affairs in ways not available to most workers.
| Group | Why it matters | What to review |
|---|---|---|
| Family businesses | Business profits may be distributed through a discretionary trust. | Distribution minutes, beneficiary tax rates, company beneficiaries and succession plans. |
| Property investors | Rental income and capital gains may flow through trusts. | Negative gearing, CGT, land tax, debt and beneficiary mix. |
| Migrants and expats | Residency can affect how trust distributions are taxed. | Non-resident beneficiaries, trustee tax and withholding issues. |
| High-income families | Income splitting benefits may reduce if a 30% floor applies. | Adult children distributions, bucket company use and family trust election risks. |
Which trusts and income types are excluded from the discretionary trust minimum tax?
The official announcement lists several exclusions, including fixed and widely held trusts, charitable trusts, special disability trusts, complying superannuation funds and deceased estates. It also lists primary production income, certain income relating to vulnerable minors and some discretionary testamentary trust income as outside the minimum tax.
The Prime Minister’s statement says the minimum tax will not apply to fixed and widely held trusts, charitable and special disability trusts, complying superannuation funds, deceased estates, primary production income, certain income relating to vulnerable minors, and income from assets of discretionary testamentary trusts existing at announcement.
| Excluded category | Why this matters |
|---|---|
| Fixed and widely held trusts | These do not offer the same distribution flexibility as discretionary trusts. |
| Charitable and special disability trusts | The reform is not aimed at these protective or public-benefit structures. |
| Complying superannuation funds | Superannuation is treated under separate tax rules. |
| Deceased estates | Estate administration is not the main target of the reform. |
| Primary production income | Farming and primary production income receives specific treatment. |
| Certain vulnerable minor income | The exclusion reduces unintended impacts on vulnerable beneficiaries. |
How does the discretionary trust rollover relief from 1 July 2027 work?
The Government has announced expanded rollover relief for three tax years starting on 1 July 2027. The purpose is to give businesses and individuals using trusts time to restructure before the 30% minimum tax begins. Detailed eligibility rules still need final legislation and ATO guidance.
The Budget page states that rollover relief will be provided for three years from 1 July 2027 to assist small businesses and others that wish to restructure. The Prime Minister’s statement describes it as expanded rollover relief for three tax years.
Practical note: rollover relief does not mean every restructure will be tax-free or commercially suitable. It means affected groups should review whether moving assets, changing ownership or simplifying structures is worth exploring before 1 July 2028.
How do family trusts and family trust elections fit into the changes?
Family trusts need special attention because they may already carry family trust election and family trust distribution tax risks. The new 30% minimum tax is separate from existing ATO family trust rules, so trustees should not confuse Budget reform with current FTDT obligations.
The ATO says a trust is not a family trust for tax purposes just because the words “family trust” appear in its name. The trustee must make a family trust election for the trust to be treated as a family trust for tax purposes.
The ATO also says family trust distribution tax can apply at the top marginal rate plus Medicare levy, currently 47%, when distributions are made outside the family group after a family trust election or interposed entity election.
| Issue | Current ATO risk | Budget reform risk |
|---|---|---|
| Family trust election | Wrong specified individual can create FTDT exposure. | Distribution planning may also face a 30% minimum rate. |
| Bucket company | Division 7A and UPE issues may apply. | Trust vs company structure may need fresh modelling. |
| Adult children distributions | Section 100A and reimbursement risk may need review. | Low-rate distributions may lose part of their tax advantage. |
Discretionary trust tax examples after the 30% minimum tax
These examples show how the minimum tax may change decision-making. They are simplified and based on the announced policy, not final legislation. The final rules may define income, credits, exemptions, timing and interaction with existing trust rules differently.
Example 1: Distribution to an adult beneficiary on a low tax rate
| Trust income distributed | $40,000 |
| Beneficiary’s estimated tax before reform | $4,000, illustrative only |
| 30% minimum tax benchmark | $12,000 |
| Planning issue | The trust may lose the benefit of distributing to a very low-tax beneficiary. |
Example 2: Family business trust using distributions for succession
A family business trust distributes income to parents and adult children who work in the business. The trust may still be useful for succession planning and asset protection, but the family should model whether the 30% minimum tax changes the after-tax result from 2028-29.
Example 3: Migrant family with a non-resident beneficiary
A migrant family has an Australian discretionary trust with one adult child living overseas. The ATO says if a beneficiary is a non-resident at the end of an income year, the trustee rather than the beneficiary may be taxed on that beneficiary’s share of the trust’s net income. This makes residency checks critical before making distributions.
What should trustees review before 1 July 2028?
Trustees should start with structure, beneficiaries, tax rates, family trust elections and commercial purpose. The aim is not to rush into restructuring, but to identify whether the trust still works for asset protection, succession, business operations and after-tax outcomes under the proposed rules.
Trustee review checklist
- List every discretionary trust in the private group.
- Identify trust assets, income types and likely beneficiaries.
- Check whether a family trust election or interposed entity election exists.
- Confirm the specified individual and family group boundaries.
- Review distributions to adult children, companies, trusts and non-residents.
- Model the 30% minimum tax against current distribution outcomes.
- Review Division 7A, unpaid present entitlements and bucket company balances.
- Check whether rollover relief from 1 July 2027 could help restructure.
- Document the commercial purpose of the trust beyond tax planning.
- Obtain tax advice before changing ownership or moving assets.
How does this connect with negative gearing and CGT changes?
The discretionary trust reform should be read with the Budget’s property tax changes. Trusts that hold investment properties may face three overlapping issues: negative gearing changes, capital gains tax reform and the 30% discretionary trust minimum tax. The best structure may change after modelling all three.
For property investors, read the Eduyush guide to negative gearing changes and the companion negative gearing calculator. Accounting readers may also find the IAS 40 investment property guide useful for financial reporting context.
FAQs on discretionary trust tax changes Australia
What is the new discretionary trust tax in Australia?
The 2026-27 Budget proposes a 30% minimum tax on discretionary trusts from 1 July 2028. The measure is intended to align trust tax outcomes more closely with wage earners and reduce the advantage of very low-tax trust distributions.
When does the 30% minimum tax on discretionary trusts start?
The proposed start date is 1 July 2028. Expanded rollover relief is expected to be available for three tax years from 1 July 2027, giving businesses and individuals time to consider restructuring before the start date.
Does the minimum tax apply to all trusts?
No. The official statement says the minimum tax will not apply to fixed and widely held trusts, charitable trusts, special disability trusts, complying superannuation funds, deceased estates, primary production income, certain vulnerable minor income and some discretionary testamentary trust income.
Will family trusts still be allowed in Australia?
Yes. The Government says the reforms will not change or limit the use of trusts for legitimate reasons such as succession planning and asset protection. The main change is the proposed minimum tax outcome for discretionary trust income from 2028.
What is family trust distribution tax?
Family trust distribution tax is an existing ATO risk that can apply when a family trust or interposed entity distributes outside the family group. The ATO says FTDT is payable at the top marginal rate plus Medicare levy, currently 47%.
Should a discretionary trust be restructured before 2028?
Not automatically. Restructuring can trigger tax, duty, legal and commercial consequences. Trustees should first model the 30% minimum tax, review family trust election risks and wait for detailed legislation before moving assets or changing ownership.
Related Eduyush guides
- Negative gearing Australia
- Negative gearing calculator
- Capital gains tax Australia
- Discretionary trust changes
- Trust distribution tax
- IAS 40 investment property
Disclaimer: This article is general education only and is not tax, legal or investment advice. The final law may differ from the announced policy. Trustees should obtain advice from a registered tax agent or lawyer before restructuring a trust or making distributions.
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