Discretionary trusts (often called family trusts) are popular for a reason—especially among business owners, investors, and many medical professionals.
They can:
- give flexibility in how income is distributed
- help separate personal and business assets
- support broader wealth, succession, and estate-planning strategies
Now there’s a new development worth paying attention to.
The Government has released exposure draft legislation proposing a 30% minimum tax on certain discretionary trusts from 1 July 2028.
That sounds dramatic—and for some trust owners, it could be. But it’s also important to keep perspective:
- the rules are not final
- more details are still to come
- the proposal must pass Parliament before it becomes law
So, this is a time to get informed—not a time to panic-restructure.
The 60-second overview
If the proposal becomes law, the key points (as drafted) are:
- certain discretionary trusts would pay a minimum 30% tax on relevant trust income
- the trustee would be assessed and pay the tax
- individual beneficiaries would generally receive a non-refundable tax offset for their share of the tax paid
- corporate beneficiaries (companies) would not receive that offset
- some trusts and some categories of income would be excluded
- existing trusts may be able to elect into an alternative approach that reduces flexibility (more on that below)
- temporary roll-over relief may apply for eligible trusts that restructure
- further rules on administration, integrity measures and interactions with other tax provisions are still to come
Proposed start date: 1 July 2028.
How discretionary trusts are taxed today (quick refresher)
Under current rules, a discretionary trust typically does not pay tax if beneficiaries are made presently entitled to the trust income.
Instead:
- beneficiaries include their share of the trust’s taxable income in their own tax returns
- beneficiaries pay tax at their own marginal rates
This is where discretionary trusts can be powerful: the trustee can decide (subject to the trust deed and tax law) who receives income each year—for example:
- adult family members
- a spouse
- another eligible trust
- a private company (often called a bucket company)
If income is retained in the trust, or no beneficiary is presently entitled, the trustee is generally taxed at the top marginal rate.
Also worth noting: there are already integrity rules that limit income splitting in certain situations—particularly where income is mainly generated from an individual’s personal skills or efforts.
What’s proposed to change from 1 July 2028?
Under the draft, an affected discretionary trust would pay minimum tax of 30% on its relevant net income.
Beneficiaries would generally still be assessed on their share of trust income, but the way the trustee-paid tax is recognised depends on who receives the distribution.
If the trust distributes to an individual beneficiary
The individual would generally receive a non-refundable tax offset for their share of the minimum tax paid by the trustee.
In plain terms:
- if the individual’s tax on that distribution is more than the offset → they pay the difference
- if the individual’s tax is less than the offset → the unused part is generally not refunded and not carried forward
This could reduce the tax advantage of distributing income to adult beneficiaries whose marginal tax rates are below 30%.
If the trust distributes to a corporate beneficiary (bucket company)
A company would not receive the minimum tax offset.
So, the company would still be assessed on the gross trust income, even though the trustee already paid minimum tax.
This can create:
- double tax upfront (trust level + company level), and
- a potential cash-flow hit, even if some tax is later reflected through franking credits when dividends are paid.
Result: bucket company strategies may become less effective for affected trusts.
A simple example (deliberately simplified)
Assume an affected family trust has taxable income of $100,000.
- Trustee pays minimum tax: $30,000
- If distributed to an individual: the individual includes $100,000 in taxable income and may receive a $30,000 non-refundable offset
- if their tax is less than $30,000, the excess offset is generally lost
- If distributed to a company: the company is assessed on the full $100,000 and receives no offset
Actual outcomes will depend on the trust’s income, deductions, beneficiaries, franking credits and other details.
Which trusts and income might be excluded?
The exposure draft proposes the minimum tax would not apply to a number of structures, including:
- fixed trusts
- widely held trusts
- managed investment trusts and attribution managed investment trusts
- bare trusts
- charitable trusts
- special disability trusts
- complying superannuation funds
- deceased estates
- certain employee share trusts
Discretionary testamentary trusts established for genuine testamentary purposes are also expected to be excluded, but conditions would apply (particularly if assets are added from outside the deceased estate).
Certain categories of income are also proposed to be excluded, including:
- taxable primary production income
- certain income relating to vulnerable minors
- distributions to registered charities and deductible gift recipients
- certain distributions to other income tax-exempt organisations
- certain income distributed to non-residents and subject to withholding tax
These exclusions are detailed and may change before final legislation.
An alternative election for existing trusts (less tax, less flexibility)
For eligible discretionary trusts that exist on 1 July 2028, the trustee may be able to elect for the trust to be treated as an excluded election trust, meaning the 30% minimum tax would not apply while the election remains valid.
But the trade-off is significant: the trust would need to operate more like a fixed trust.
The trustee would need to nominate:
- the beneficiaries who will receive income and capital
- a fixed percentage allocated to each beneficiary
- the same percentage entitlement for both income and capital
Those percentages must total 100%.
Changing beneficiaries or percentages would only be allowed in limited circumstances (e.g., death of a beneficiary or qualifying relationship breakdown). If required distributions aren’t made, the election could be revoked—potentially triggering high-rate trustee taxation outcomes for that year, with the minimum tax applying in later years.
Bottom line: this isn’t a “tick-the-box” election. If the proposal becomes law, it would require careful tax and legal advice.
What about restructuring the trust?
Temporary roll-over relief is proposed for a three-year period from 1 July 2027.
This may allow an affected discretionary trust to transfer assets to another structure (such as a company or fixed trust) without triggering immediate income tax or capital gains tax.
However, roll-over relief doesn’t automatically mean “no cost”:
- future tax may be deferred rather than eliminated
- cost bases may carry across
- GST or FBT may still apply
- state/territory transfer duty may apply
- finance arrangements/guarantees may need renegotiation
- asset protection and estate planning outcomes may change
- all or substantially all trust assets may need to be transferred
A restructure that looks good for income tax can create problems elsewhere—so it needs to be assessed holistically.
What happens to franking credits?
Where a discretionary trust receives franked dividends, franking credits would generally be applied against the minimum tax payable by the trustee.
Under the exposure draft, the trustee may be entitled to a refund of eligible excess franking credits after tax liabilities are offset.
For income subject to the minimum tax, franking credits would no longer flow through to beneficiaries in the usual way. Instead, eligible non-corporate beneficiaries would receive the relevant non-refundable minimum tax offset.
Are there other trust changes coming?
Potentially.
The Government has also been consulting on bringing certain unpaid present entitlements (UPEs) owed by trusts to related private companies within Division 7A.
If that proceeds, affected amounts may need to be repaid, placed under complying loan arrangements, or potentially treated as unfranked deemed dividends.
Further details are still required, including how this measure would interact with the proposed minimum trust tax.
What should trust owners do now?
At this stage, there’s no need to make immediate changes based solely on exposure draft legislation.
Restructuring too early can trigger unnecessary:
- tax
- duty
- legal fees
- transaction costs
…especially when the rules may change before they’re passed.
For now, trust owners may want to get their records in order so they’re ready to assess the impact once the final rules are known:
- trust deed and any variations
- recent trust tax returns and financial statements
- annual distribution resolutions
- details of individual, company and trust beneficiaries
- records of UPEs and related-party loans
- assets and liabilities held by the trust
- cost base and acquisition dates for major assets
Final thought
The proposed 30% minimum tax could materially change how some discretionary trusts are used—particularly where income is distributed to lower-taxed adult beneficiaries or retained through a bucket company strategy.
But that doesn’t mean:
- every trust will be affected, or
- every affected trust should restructure.
Depending on the final law and your circumstances, the right approach may be to:
- retain the existing trust
- use the proposed election
- restructure into another entity
- or adopt a combination of strategies
That assessment can only be made once the legislation is final and your complete position is considered.
What happens next?
Specialist Wealth will continue to monitor the progress of the legislation and the release of the remaining administrative and integrity rules.
We will guide affected clients in due course and, where appropriate, work alongside their accountant and legal adviser to assess:
- whether their trust is likely to be caught
- how existing distribution strategies may be affected
- whether an election or restructure should be considered
- the wider implications for tax, asset protection, estate planning and business succession
For now, the important step is to stay informed—not to make premature changes.
This article contains general and factual information only. It does not constitute personal financial advice, financial product advice, taxation advice or legal advice and does not take into account your objectives, financial situation or needs. The proposed measures are contained in exposure draft legislation, remain subject to consultation and may change before being introduced into Parliament. They will only become law if legislation is passed. You should obtain advice from an appropriately qualified financial adviser, registered tax agent and legal adviser before acting on this information.