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 the taxable income of discretionary trusts, proposed to start on 1 July 2028. It is not yet law, but if passed it would be the most significant structural change to family trust taxation in a generation. Around 350,000 small businesses across Australia operate through a discretionary trust.

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. Treasury released exposure draft legislation for consultation from 3 to 18 September 2026; the bill must still 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, with non-refundable credits for beneficiaries other than companies.

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 fairness measure that helps fund new tax cuts for workers, aimed at the income splitting that lets high-income earners 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.

The Government's Budget tax explainer says around 350,000 active small businesses (less than 15% of all active small businesses) operate through a discretionary (family) trust, and that 40% of them (140,000) are not expected to pay additional tax or need to restructure in any given year. Across all discretionary trusts, it expects around half not to be affected in a given year: where a trust already distributes to beneficiaries (other than companies) taxed at 30% or more, there is no overall increase in tax.

The Budget also includes a rollover-relief window: a three-year period beginning 1 July 2027 during which eligible discretionary trusts can restructure into another entity type, such as a company or a fixed trust, with relief from the income tax and capital gains tax (CGT) consequences that would normally apply. 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. The Budget paper also excludes widely held trusts, deceased estates and some types of income: primary production income, certain income relating to vulnerable minors, amounts subject to non-resident withholding tax, and income from assets of discretionary testamentary trusts that existed at announcement.

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 the trust's taxable income from business operations, with credits passing to beneficiaries other than companies.

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). The Budget paper lists complying super funds among the excluded trusts, 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 $190,000. 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 in 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% minimum tax on the trust's taxable income. Beneficiaries other than companies would receive a non-refundable credit for that tax (similar in concept to franking credits on company dividends) to avoid double taxation. Beneficiaries on marginal rates above 30% would pay additional top-up tax on their share; beneficiaries on marginal rates below 30% could use the credit to reduce their tax on it to nil, but any excess would not be refunded.

The precise credit and top-up mechanics are set out in the exposure draft legislation released in September 2026, which may still change before it passes. Verify the final law 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 another entity type, such as a company or a fixed trust, during this period would get rollover relief from the income tax and 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 is designed to remove 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 Government expects around half of discretionary trusts not to be affected in a given year. A trust already distributing to beneficiaries (other than companies) taxed at 30% or more pays no more tax overall, and some trusts and types of income are excluded altogether. Confirm whether your trust falls into one of these groups 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.

Ask your accountant to connect you with a trust law specialist. If your accountant uses Taxr's free accountant portal, they can already see the receipts you scan once you are linked.

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 that qualifies as a base rate entity pays tax at 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 legislation has cleared Parliament 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.

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. These CGT changes are now law: for gains arising from 1 July 2027, the 50% discount is replaced by cost base indexation and a 30% minimum tax, for assets held by individuals, trusts and partnerships. 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. Also now law: losses on established residential property acquired from 7:30pm AEST on 12 May 2026 can only be offset against residential property income or gains, with the excess carried forward. Properties held before then and new builds are exempt, and widely held trusts are excluded. Trusts buying established residential property face a triple interaction: the proposed trust minimum tax from 2028, the negative gearing limits 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. It is not yet law: Treasury released exposure draft legislation for consultation in September 2026. The 3-year rollover-relief window is proposed to open on 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 on the trust's taxable income. Beneficiaries other than companies then get a non-refundable credit for that tax to prevent double taxation, so those on higher marginal rates still pay top-up tax. The precise mechanics are in the exposure draft legislation released in September 2026.

Are all trusts affected?

No. The proposal targets discretionary (family) trusts. Fixed and widely held trusts, special disability trusts, charitable trusts, deceased estates and complying superannuation funds are excluded. Around 350,000 small businesses operate through discretionary trusts, and the Government expects 40% of them (140,000) not to pay extra tax or need to restructure in any given year.

What is the rollover-relief window?

From 1 July 2027 to 30 June 2030, eligible discretionary trusts can restructure into another entity type, such as a company or a fixed trust, with rollover relief from the usual income tax and CGT consequences. 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, so 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, removing most of 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

Update: the measure is not yet law. Treasury released exposure draft legislation for consultation from 3 to 18 September 2026 (see the ATO's new legislation page).

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 will pay more under the minimum tax, the quality of your historical bookkeeping determines how long that exercise takes and how confident the advice is. Taxr keeps your expense receipts organised 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 your accountant uses Taxr's free accountant portal, they can see the receipts you scan once you are linked, which saves time when the trust analysis starts.

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.