Trust 30% Minimum Tax Coming in 2028

The discretionary trust tax changes 2028 are now officially on the table: on 12 May 2026, the Federal Government handed down the 2026-27 Budget and announced a 30% minimum tax on income retained in or distributed from discretionary trusts, effective 1 July 2028. As proposed — and subject to passage of enabling legislation — this is the most significant structural change to family trust taxation in a generation, and it will affect roughly 350,000 small and medium businesses across Australia.

Disclaimer: This article provides general information only and does not constitute tax or legal advice. Trust structures are complex. Consult a registered tax agent who specialises in trust structures before making any decisions.

Legislative status: This measure is announced as policy in the 2026-27 Budget. It is not yet law. Enabling legislation must be introduced, pass both chambers, and receive Royal Assent before it takes effect. Trust taxation is a politically contentious area and meaningful Senate amendments — to the rate, the exemption scope, or the rollover mechanics — are a genuine possibility. We will track legislative progress in the Updates section below.

What the Budget Proposes

Budget Paper No. 2 — the 2026-27 Budget measures document — contains the formal revenue and expenditure measure announcing a 30% minimum tax on discretionary trust income. The core mechanism is a departure from the way family trust income has been taxed since the modern trust regime took shape: instead of trust income flowing through to individual beneficiaries who pay tax at their own marginal rates, the trustee would pay a 30% minimum tax at the trust level before any distribution.

The measure takes effect from 1 July 2028, giving affected trusts just over two financial years to plan their response. The Government has framed this as a revenue integrity measure — closing what Treasury describes as a structural income-splitting concession that allows high-income earners to shift taxable income to family members on lower marginal rates. The projected revenue impact is approximately $4.5 billion over the five-year forward estimates.

Treasury’s analysis indicates that approximately 350,000 businesses operate through discretionary (family) trust structures, and roughly 60% of those trusts will be materially impacted by the minimum tax. The remaining approximately 40% are either exempt by virtue of their structure, qualify for specific carve-outs, or already distribute income in a way that results in an effective tax rate at or above 30%.

The Budget also includes a rollover-relief window — a three-year period beginning 1 July 2027 during which eligible discretionary trusts can restructure into a different vehicle without triggering income tax or capital gains tax (CGT) consequences. That window is addressed in detail below, because it is arguably more important to planning decisions than the tax rate itself.

Who’s Affected (and Who Isn’t)

Not every trust is in scope. The proposal is specifically targeted at discretionary trusts — the structure also commonly called a family trust — where the trustee has discretion over how income and capital are distributed among a class of beneficiaries. Several other trust categories are explicitly outside the measure as proposed.

Discretionary (family) trusts holding business assets — affected

If your business operates through a discretionary trust — a trading entity, a professional services practice, a hospitality or retail business — you are in the primary target group. The 30% minimum would apply to trust income from business operations before any distribution to beneficiaries.

Discretionary trusts holding investment assets — affected

Investment-focused discretionary trusts — holding shares, property, or managed funds and distributing income to family members — are equally in scope. The income-splitting benefit that makes these structures attractive is the precise mechanism the measure seeks to curtail.

Fixed trusts (unit trusts) — exempt

Unit trusts, where entitlements are fixed by the number and class of units held, are not discretionary structures and fall outside the proposal. Investors and business owners using unit trust structures should still verify the final legislation, but the current proposal does not target them.

Special disability trusts — exempt

Special disability trusts established under the Social Security Act 1991 are specifically carved out. The exemption reflects the community consensus that these structures serve a welfare purpose rather than a tax-minimisation one.

Charitable trusts — exempt

Charitable trusts that hold deductible gift recipient (DGR) status or operate under the charitable trust exemption regime are outside the scope of the minimum tax.

Super funds — exempt (separate concessional regime)

Superannuation funds — whether self-managed or industry/retail — operate under a separate concessional tax regime at 15% (or 10% for capital gains with the discount). They are not trusts within the meaning of this proposal, and the Budget does not alter the superannuation tax treatment.

Why the Government Is Proposing This

Treasury’s rationale, as outlined in Budget Paper No. 2, is that the current discretionary trust regime creates a structural inequality in the tax system. A sole trader earning $250,000 pays income tax at the top marginal rate on income above $180,000. An individual operating the same business through a discretionary trust can distribute portions of that $250,000 to a spouse, adult children, or other family members on lower marginal rates — reducing the total tax paid by the family unit substantially compared to what would be paid if the income were concentrated in one taxpayer.

The Government’s position is that this outcome is inconsistent with the progressive structure of the personal income tax system and represents an ongoing integrity risk. The $4.5 billion revenue estimate over five years suggests the extent to which the current rules are being utilised.

It is worth being honest about the politics here: discretionary trust reform has been attempted, flagged, and abandoned multiple times in Australia’s recent tax history. The proposal faces a Senate where crossbench senators with strong small-business constituencies may resist elements of the measure or push for a higher exemption threshold. This is not a reason to ignore the announcement — but it is a reason not to make irreversible decisions based on the current proposal text alone.

How the 30% Minimum Works

Under the existing rules — documented by the ATO’s trusts guidance — trust income is assessed to beneficiaries in the year in which the trustee resolves to distribute it. Each beneficiary pays tax at their own marginal rate, including the 0% rate if they fall below the tax-free threshold and the top marginal rate if their total income is high enough.

Under the proposed minimum tax, the mechanics shift in a fundamental way. The trustee — not the beneficiaries — would be liable for a 30% tax on the trust’s taxable income. Distributions to beneficiaries would then be made from after-tax income, with a credit mechanism (similar in concept to franking credits on company dividends) to avoid double taxation at the beneficiary level. Beneficiaries on marginal rates above 30% would pay additional top-up tax on their share; beneficiaries on marginal rates below 30% would receive an effective credit.

The precise credit and top-up mechanics will be defined in the enabling legislation, which has not yet been released. Verify the final bill before drawing firm conclusions about how specific distributions will be taxed.

The Rollover-Relief Window (Critical)

The single most important planning lever in the 2026-27 Budget announcement is the rollover-relief window. As proposed:

• Opens: 1 July 2027
• Closes: 30 June 2030
• Coverage: Eligible discretionary trusts that restructure into a different business vehicle — a company, sole trader operation, partnership, or fixed unit trust — during this period can do so without triggering income tax or CGT consequences that would normally apply to the transfer of assets and business operations.
• After 30 June 2030: Standard CGT events apply to any restructure. A trust transferring a business and its goodwill, plant and equipment, or property to a company after that date would face normal CGT treatment.

For any discretionary trust holding appreciated assets — property, business goodwill, investment portfolios — the rollover window is genuinely significant. In a normal year, restructuring out of a trust and into a company would trigger a CGT event on the transfer of those assets, potentially at considerable cost. The proposed three-year window eliminates that friction.

For related guidance on helping clients work through this window, see Trust Restructure Rollover Window — Advise Clients.

What to Do Between Now and 1 July 2027

The rollover window does not open until 1 July 2027 — but the preparation work needs to start now, not in twelve months. Here is a structured approach:

Inventory all discretionary trusts you control. Many business owners have more than one — a trading trust, a property trust, a family investment trust. Each needs to be assessed independently against the proposed rules.

Get professional advice on exemption eligibility. The approximately 40% of discretionary trusts that will not be materially impacted may qualify because of their specific distribution patterns, beneficiary profiles, or structural features. Confirm whether your trust falls into this group before assuming the worst.

Model the numbers. For trusts that are in scope, compare the current effective tax rate on distributions (taking into account the marginal rates of your current beneficiary pool) against the proposed 30% minimum. For some trusts — particularly those that already distribute primarily to beneficiaries on 30%+ marginal rates — the practical impact may be modest. For others, the change will be substantial.

Plan the restructure-or-stay decision well before the rollover window opens. The rollover window runs for three years, but advisers with trust restructure expertise will be in high demand from mid-2027 onward. Getting the structural analysis done in 2026 or early 2027 means you are making a considered decision, not a rushed one.

You can find Taxr-recommended trust and tax specialists through our accountants directory, or consult an accountant who can connect you with a trust law specialist.

Common Restructure Targets

For trusts that are in scope and where the numbers support restructuring, the most common destination structures are:

Company (Pty Ltd): A company pays the base rate entity tax of 25% — lower than the proposed 30% trust minimum — and provides limited liability. Income can be retained and reinvested at the lower rate. Distributions to shareholders come out as dividends with franking credits. For the detailed comparison between operating as a sole trader versus a company, see our Sole Trader vs Company in Australia guide.

Company plus retained family trust: In some cases, the right outcome is not a wholesale restructure but a hybrid — winding the discretionary trust’s active trading operations into a company while keeping a trust structure for assets that qualify for a specific exemption or carve-out. The mechanics of this need careful legal structuring.

Sole trader or partnership for active business income: For smaller businesses where the income-splitting benefit was the primary reason for using a trust, restructuring to a simpler sole trader or partnership arrangement may be appropriate. The compliance overhead is lower, and the tax position may not be materially worse once the minimum tax is in effect.

Fixed unit trust: Unit trusts are outside the proposed measure. Converting a discretionary trust to a fixed unit trust is a structural option, but the loss of the trustee’s distribution discretion is a significant change in how the structure operates. Take specific advice before going this route.

Risk: This Is High Senate-Amendment Probability

To be direct: discretionary trust taxation is one of the most politically sensitive areas of Australian tax policy, and this proposal carries a higher-than-average risk of meaningful legislative amendment before it passes — if it passes in its current form at all.

The rate (30%) may shift in either direction. The exemption scope — particularly the treatment of trusts with a mix of business and investment assets — is likely to be contested. The rollover-relief mechanics are the kind of drafting detail that tends to acquire complexity and carve-outs during the legislative process. And the timeline itself (1 July 2028 commencement, rollover window opening 1 July 2027) will be a negotiating point in the Senate.

None of this means you should ignore the measure. A $4.5 billion revenue estimate signals serious Government intent, and the rollover window is a real and time-limited opportunity regardless of whether the rate or exemption scope changes. But it does mean that any restructure decision made before the enabling legislation is released — and ideally before it has cleared the Senate — should be made with the understanding that the rules may look different in the final version.

We will track the legislative progress in the Updates section below. Check back after the Budget sits and before the Winter sitting period ends.

Interaction with Other Budget Changes

The 2026-27 Budget contains two other measures that property and investment-heavy discretionary trusts need to consider alongside the minimum tax:

CGT indexation and 30% minimum — from 1 July 2027. The Government has also proposed changes to the CGT discount regime for certain asset classes from 1 July 2027. The interaction between this measure and the trust minimum tax — particularly for trusts holding property or shares — is material and needs to be modelled together. See CGT Indexation and the 30% Minimum for detail.

Negative gearing limits — from 1 July 2027. The Budget also proposes capping negative gearing deductions for investment property held in trusts (among other structures) from the same date. Trusts holding leveraged investment property face a triple interaction: the trust minimum tax from 2028, the negative gearing cap from 2027, and the CGT changes from 2027. See Negative Gearing Changes in the 2026 Budget.

For trusts that hold investment property and distribute income to lower-rate family members, all three of these measures converge on the same structure. The combined modelling needs to be done as a package, not measure by measure.

Frequently Asked Questions

When does the trust 30% minimum tax start?

From 1 July 2028, as proposed in Budget Paper No. 2 — subject to passage of enabling legislation. The 3-year rollover-relief window opens 1 July 2027, a full year before the tax takes effect, to give trustees time to restructure if needed.

Who pays the tax?

The trustee of the discretionary trust pays the 30% minimum at the trust level, replacing the current pass-through model where beneficiaries are taxed at their marginal rates. Distributions to beneficiaries are then made from after-tax trust income, with a credit mechanism to prevent double taxation — the precise mechanics will be defined in the enabling legislation.

Are all trusts affected?

No. The proposal targets discretionary (family) trusts. Fixed trusts, special disability trusts, charitable trusts, and superannuation funds are exempt. Approximately 350,000 SMBs operate through discretionary trusts; about 60% will be impacted. The remaining 40% either qualify for specific carve-outs or already distribute in a way that results in effective rates at or above 30%.

What is the rollover-relief window?

From 1 July 2027 to 30 June 2030, eligible discretionary trusts can restructure to a different vehicle — company, sole trader, partnership — with no income tax or CGT consequence. This is a significant concession: restructuring a trust that holds appreciated assets would normally trigger CGT on the transfer. After 30 June 2030, restructures trigger standard CGT events at the then-applicable rates.

Should I dissolve my trust now?

Not without specialist advice. Dissolving a trust outside the rollover window triggers standard CGT and income tax consequences on asset transfers. Most affected trusts should take a planned, advice-led approach rather than emergency action. The rollover window gives you until 30 June 2030 — use that time to make a considered decision. Consult a registered tax agent who specialises in trust structures and, where assets are involved, a trust lawyer.

Will streaming income to low-rate beneficiaries still work?

Under the proposal, the 30% minimum applies at the trustee level — eliminating the income-splitting benefit that many family trusts use as their primary justification. Beneficiaries on marginal rates below 30% would receive a credit for the tax paid at trust level, but would not receive a cash tax refund. The precise mechanics — including how the credit interacts with the low-income tax offset and other personal tax concessions — need verification against the final legislation.

Updates

No legislation amendments yet. We will track Senate progress here.

Trust restructures hinge on clean records — every asset, every distribution, every expense traceable across years. When your accountant sits down to model whether your trust is in the 60% or the 40%, the quality of your historical bookkeeping determines how long that exercise takes and how confident the advice is. Taxr keeps the ongoing bookkeeping tight while your accountant and tax specialist focus on the structural decision. Download Taxr and stop digging through five years of paper receipts when restructure time arrives. And if you need a specialist to guide the trust analysis, our accountants directory connects you with practitioners who work with SMB trust structures every day.

If you’re operating as a sole trader and considering whether a trust or company structure makes sense as your income grows, the Budget announcement is a timely reminder that the trust decision has just become considerably more complex — and that the simpler structures deserve a fresh look.