The 30% Trust Tax: What It Means for Your Family Trust and When to Act
Australian Federal Budget 2026-27 — Tax Reform Series | Article 2 of 4
From 1 July 2028, a minimum 30% tax will apply to the taxable income of all discretionary trusts, paid by the trustee. For the roughly one million discretionary trusts in Australia, this is a fundamental change — not just in the amount of tax paid, but in when it is paid and how flexibility is affected.
How the New Tax Works
Trustees pay 30% on the trust's taxable income upfront, at the trust level. Individual and non-corporate beneficiaries then declare their share of income and receive a non-refundable credit for the tax already paid. The word "non-refundable" is doing a lot of work here: if a beneficiary's own marginal rate on their share is lower than 30%, they cannot claim back the difference. The tax advantage of distributing to lower-income family members is effectively eliminated.
Corporate beneficiaries ("bucket companies") are hit hardest. They receive no credit at all for tax paid by the trustee — the same income is taxed twice. The strategy of appointing trust income to a company to cap or defer tax is largely rendered ineffective.
Cash flow impact: Tax will be payable on the trust's return, with instalments likely to apply. This brings forward the cash impact compared to the current flow-through model where individual beneficiaries pay tax in their personal returns.
What Is Exempt
The 30% minimum tax does not apply to:
Fixed trusts and widely held trusts (including managed investment trusts)
Fixed testamentary trusts
Complying superannuation funds
Special disability trusts
Deceased estates
Charitable trusts
These types of trust income are also excluded even within a discretionary trust:
Primary production income
Income relating to vulnerable minors
Non-resident withholding tax amounts
Income from assets of discretionary testamentary trusts existing at Budget night
The Rollover Window: Three Years to Restructure
The Government has provided rollover relief from 1 July 2027 for three years to allow businesses and investors to move out of discretionary trusts into a company or fixed trust without triggering CGT or income tax on the transfer of assets.
This window (July 2027 – June 2030) is the primary mechanism for restructuring. Since the new tax starts July 2028, the optimal window to restructure before the new rules apply is July 2027 to June 2028 — but preparation needs to start well before then. Valuations, legal restructuring, lending changes, and trustee resolutions all take time.
Company or Fixed Trust?
Moving to a company is the most common restructure path. The 25% small business corporate rate is lower than the 30% minimum trust tax, and companies carry imputation benefits. The tradeoff: companies don't have a CGT discount on asset sales, and distributions are less flexible.
Converting to a fixed trust — where beneficiaries have defined entitlements — escapes the minimum tax entirely, while preserving the trust structure. The tradeoff: you give up income-splitting discretion permanently.
There is no universal right answer here. The best structure depends on your income type, beneficiary profile, asset base, and succession goals. This is one of those decisions where tailored advice will pay for itself many times over.
Key Questions to Ask About Your Trust
Are most distributions currently going to beneficiaries already taxed at 30% or above? If so, the practical impact may be smaller than you think.
Are you currently using a bucket company? If yes, review urgently — that strategy is largely over.
Does the trust hold business assets, investment assets, or both? The choice of replacement structure may differ.
Are there succession or estate planning considerations that a restructure could disrupt?
Key Dates
Event Date Rollover relief window opens 1 July 2027 30% minimum trust tax commences 1 July 2028 Rollover relief window closes 30 June 2030
All proposed measures are subject to legislation and may change. This article is general information only and does not constitute tax or financial advice.