Proposed Discretionary Trust Tax Changes: What You Need to Know Before 2028
- Jaqui Peters
- 8 hours ago
- 4 min read
A Summary:
The 2026–27 Federal Budget announced a number of significant tax reforms, including reforms to capital gains tax, negative gearing and the taxation of discretionary trusts. While the capital gains tax and negative gearing changes received much of the attention, the proposed changes to discretionary trusts are also important for business owners and families who use these structures. Although the proposed minimum tax is not scheduled to apply until 1 July 2028, preparation should begin now.
How it currently works:
A trust is a legal arrangement where one person or company (the trustee) holds and manages assets for others (the beneficiaries). As the name might suggest, a discretionary trust is a trust where the trustee generally has discretion over which beneficiaries receive distributions of trust income and/or capital, and in what proportions, subject to the terms of the trust deed.
For Australian family businesses, discretionary trusts can provide benefits such as asset protection, succession planning and tax planning through flexibility in distributing income and capital. To give an example of how tax planning in a trust might currently work, a discretionary trust could hold $100,000 of taxable income. If the trustee distributes $25,000 to each of four beneficiaries, each beneficiary will generally be assessed on their $25,000 share at their applicable marginal tax rate.
What’s changing?
From 1 July 2028, the Government proposes to introduce a 30% minimum tax on the taxable income of discretionary trusts, subject to specified exemptions and exclusions. The tax will be paid at trustee level. Revisiting our earlier example, the trustee will pay tax on the $100K before they distribute it to the other beneficiaries of the trust. Beneficiaries will still need to declare their trust income, but other than corporate beneficiaries, will receive non-refundable credits for tax paid by the trustee.
The proposed 30% minimum tax is intended to reduce the tax advantage that can arise from income splitting. The Government explained:
“This is about better aligning the taxes paid on these types of income with the taxes paid on wages.”
In particular, the Government has identified income splitting through discretionary trusts as an area where different structures can result in different tax outcomes for people with similar levels of income.
Those exempt:
The proposed minimum tax will not apply to a number of trusts and types of income. These include fixed and widely held trusts, charitable trusts and entities, special disability trusts, complying superannuation funds and deceased estates. Certain types of income, including primary production income and certain income relating to vulnerable minors, will also be excluded. The Government has subsequently confirmed that income from discretionary testamentary trusts established for genuine testamentary purposes will be excluded from the minimum tax. However, the exclusion is limited to income from assets of the deceased estate, and additional conditions will apply to discretionary testamentary trusts established on or after 1 July 2028.
How to prepare:
Importantly, the Government is still finalising the implementation details. The Treasury conducted consultation on the proposed rules in July 2026, with further details expected as the legislation is developed. However, for now:
Trustees and beneficiaries should begin reviewing their existing structures.
Consider how the proposed rules could affect your trust’s existing distribution practices, beneficiaries and underlying assets.
It is a good idea to do your research and discuss any proposed changes with a professional before actioning, as there can be different costs and longer-term benefits you may be unaware of.
Depending on the circumstances, restructuring may have tax and legal consequences, including capital gains tax, transfer or stamp duty, changes to licenses or registrations, and the need to renegotiate contracts. It is important to assess the short- and long-term benefits and priorities of the trust before making any decisions.
If you are unsure where to start or have any questions, Ballast Accountants can help you create a plan to ensure you are prepared as the legislation is finalised and the new rules approach commencement.
Rollover Relief Window:
If you do decide that restructuring your trust is the right move for your financial position, the Government will provide expanded rollover relief for three financial years starting from 1 July 2027 to support businesses and others who wish to restructure out of discretionary trusts. However, don’t assume that this relief will automatically apply to your circumstances. Do your research and speak to a professional to ensure you are informed about your options.
Discretionary trusts offer more than just tax-planning opportunities. Consider your own financial situation, what you use your trust for and speak to your accountant for advice before making any drastic changes. The proposed minimum tax is scheduled to apply from 1 July 2028, with implementation details still being developed, but it would be a good idea to start planning now in preparation for the proposed 30% minimum tax. The Government expects that over 90% of Australia’s 2.7 million active small businesses will not be affected by the changes in any given year.
Current as of 1 September 2026.
Disclaimer:
Ballast Accountants Pty Ltd have not taken into account your personal information or circumstances in the construction of this correspondence. This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for taxation advice. You should consult your own advisor before relying on any information contained in this correspondence.
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