Proposed trust tax changes in Australia: What family trusts need to know
The Federal Government has progressed its proposed minimum tax on discretionary trusts, with Treasury’s consultation period now closed. The consultation paper provided further detail on how the measure could operate from 1 July 2028.
While the proposal is not yet law, the consultation gives taxpayers, advisers and business owners a clearer picture of the Government’s intentions and highlights some of the issues still to be resolved.
If you operate through a family trust, hold investments in a discretionary trust, or use a trust as part of your succession planning, now is a good time to understand what has been proposed and what it could mean for you.
A quick recap
As part of the 2026–27 Federal Budget, the Government announced plans to introduce a minimum tax rate of 30% on taxable income derived through discretionary trusts from 1 July 2028. The stated objective is to reduce differences between the tax treatment of trust income and employment income.
Importantly, the measure remains a proposal and is not yet law. Consultation on the proposal has now closed, and the Government is expected to consider feedback before releasing draft legislation.
What new information has been released?
The consultation paper provides additional detail on several areas that were previously unclear:
Exemptions and exclusions
The Government has indicated that a range of trusts would be excluded from the proposed minimum tax, including:
- Fixed trusts
- Widely held trusts
- Complying superannuation funds
- Charitable trusts
- Special disability trusts
- Deceased estates
- Testamentary trusts established for genuine testamentary purposes.
The consultation paper also confirms that certain categories of income would be excluded, including primary production income and some income relating to vulnerable minors.
Small business restructuring relief
Recognising that some taxpayers may choose to restructure their affairs if the proposal proceeds, the Government is consulting on expanded rollover relief that would be available for three years from 1 July 2027.
This relief is intended to help eligible small businesses and other taxpayers transition away from discretionary trust structures without triggering immediate tax consequences. However, the final design and eligibility criteria are yet to be confirmed.
Corporate beneficiaries
One of the more significant areas still being worked through is the treatment of corporate beneficiaries. Many family groups currently use corporate beneficiaries as part of their distribution strategy.
The consultation paper seeks feedback on how these arrangements should be treated under the proposed rules, suggesting this remains an area where further refinement may occur before legislation is introduced.
Franking credits
Another unresolved issue is the treatment of excess franking credits. Treasury is seeking feedback on how franking credits should interact with the proposed minimum tax framework.
For taxpayers with investment portfolios held through trust structures, this could become an important consideration once further details are released.
What remains uncertain?
Although the Government has provided additional guidance, many questions remain unanswered.
Key areas still requiring clarification include:
- The final definition of a discretionary trust
- How trustee-level tax will be administered
- The treatment of corporate beneficiaries
- Interactions with existing trust tax provisions
- The practical operation of restructuring relief
- The treatment of franking credits and other tax attributes.
Until draft legislation is released, it is difficult to determine exactly how affected taxpayers may need to respond.
What does this mean for business owners and investors?
At this stage, there is no immediate action required for most taxpayers.
The proposal is not expected to commence until 1 July 2028. Consultation on the proposal has now closed, but draft legislation has not yet been released. The Government has stated that more than 90% of small businesses are not expected to be affected by the proposed minimum tax in any given year.
However, individuals and businesses that use discretionary trusts should stay informed as the proposal develops. The final legislation may influence future decisions around:
- Business structures
- Succession planning
- Investment ownership
- Use of corporate beneficiaries
- Trust distribution strategies.
The release of Treasury’s consultation paper remains the most significant development to date in the proposed discretionary trust tax reforms. Consultation on the proposal has now closed, but legislation has not yet been introduced. The latest information provides greater clarity around likely exemptions, restructuring relief and the Government’s intended direction, although many design details remain unresolved.
If you would like to discuss how the proposed changes may affect your circumstances, contact your AFS advisor for tailored advice.
