The 30% minimum tax on discretionary trusts: what the Budget change means for you

In the 2026–27 Federal Budget, handed down on 12 May 2026, the Government announced a minimum tax rate of 30% for discretionary trusts, starting on 1 July 2028. For the many small businesses, families and investors who use a family trust, it's one of the biggest proposed changes to trusts in decades.

The most important thing to know first: this is a proposal, not law. Treasury consulted on the design in July 2026 and released the first tranche of draft legislation on 3 September 2026. The details below reflect what has been announced and drafted so far, and they could change before anything is passed.

How trusts are taxed now

Today, a discretionary trust generally doesn't pay tax itself. The trustee decides each year which beneficiaries receive the trust's income, and those beneficiaries pay tax on it at their own rates. That flexibility is why trusts are popular: income can go to family members on lower tax rates, or to a company (often called a "bucket company") that pays tax at the company rate.

What's proposed

Under the proposal, the trustee of a discretionary trust would pay tax of at least 30% on the trust's taxable income. Beneficiaries who are individuals would receive a non-refundable credit for the tax the trust has paid.

• Beneficiaries on 30% or more: the credit covers the tax already paid, and they pay any top-up at their own rate, much like today.
• Beneficiaries on lower rates (for example, adult children at university or retired parents): because the credit is non-refundable, they can't get back the difference between 30% and their own rate. This is where the extra tax comes from.
• Company beneficiaries: the credit can't be passed to a company. Income distributed to a bucket company would effectively be taxed twice, once in the trust and again in the company, which is why many advisers expect bucket company strategies to become far less attractive.

Which trusts are excluded?

The announcement and draft law exclude a range of trusts, including fixed trusts (the draft broadens this definition to cover many unit trusts), widely held trusts, complying super funds, special disability trusts, deceased estates and genuine testamentary trusts, and charitable trusts. Treasury has acknowledged that defining a "discretionary trust" is tricky, so the boundaries are one of the areas most likely to change.

The opt-out election in the draft law

The draft legislation includes a one-off election for trusts that exist on 1 July 2028. Broadly, the trustee can nominate the beneficiaries who will receive the trust's income and capital, and lock in their entitlements. A trust that makes the election and keeps to it may fall outside the minimum tax. The trade-off is that the trust loses its flexibility: entitlements can only change in limited situations, such as a beneficiary's death or a relationship breakdown, and breaking the election has serious tax consequences.

Rollover relief to restructure

To help people move out of discretionary trusts, the Government has proposed rollover relief for three years, from 1 July 2027 to 30 June 2030. It would let a trust transfer assets into a company or a fixed trust without triggering income tax or capital gains tax. Two cautions: state taxes such as stamp duty aren't covered, and the draft includes a clawback if discretionary features are added back within four years.

Other Budget changes that affect trusts and investors

The Budget also announced changes that are separate from the trust measure but often affect the same people. Like the trust measure, these are subject to legislation:

• From 1 July 2027, the 50% capital gains tax discount would be replaced with a discount based on inflation, together with a minimum 30% tax rate on capital gains. It's intended to apply only to gains that accrue from 1 July 2027.
• From 1 July 2027, negative gearing for residential property would be limited to new builds. Properties held before 7:30pm AEST on 12 May 2026 are exempt.

What should you do now?

Don't rush. With the law still in draft and rollover relief not starting until 1 July 2027, a hasty restructure now could cost you stamp duty and fees for a result that turns out to be wrong. Instead:

1. Look at who your trust actually distributes to. If most income already goes to adults on 30% or more, the impact may be small.
2. Check whether you rely on a bucket company or on distributions to low-income family members. These are the arrangements most affected.
3. Model the 2028–29 year under the proposed rules, so you know what's at stake in dollars.
4. Keep your trust paperwork in order. The ATO is already focused on trust distributions under existing rules, and good records will make any future restructure easier.
5. Plan, then act once the law is final, using the rollover window if a company or fixed trust makes more sense.

If you have a family trust, we can review your structure, model the proposed changes and help you decide whether to wait, elect or restructure. See our company and trust services or book a free consultation.