How Families and Business Owners Could Be Affected by Trust Tax Changes
The new 30% minimum tax on discretionary trusts will reduce the benefit of distributing income to lower-income family members. Families and business owners may need to review existing structures, while exemptions for farming income, testamentary trusts, and disability trusts remain in place. A rollover relief window from 2027 may provide restructuring opportunities.
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Introduction
Discretionary trusts have been a popular structure for families and business owners. They have been used for asset protection, succession planning, family wealth management, and, in some cases, reducing the overall tax paid across a family group.
From 1 July 2028, discretionary trusts will be subject to a new 30% minimum tax on trust income. While trusts are not disappearing, the reasons for using them may change considerably.
For families and business owners, the next few years provide an opportunity to review existing structures and decide whether they still achieve the outcomes they were originally designed for.
Why Is the Government Changing Trust Taxation?
The Government argues that discretionary trusts have increasingly been used to distribute income to family members on lower tax rates.
Under the current system, a trust can allocate income to different beneficiaries each year, which may reduce the family's overall tax bill.
The new rules are designed to limit that outcome by introducing a minimum tax rate of 30% on discretionary trust income.
If the primary reason for using a trust has been to achieve a tax rate below 30%, that benefit is likely to disappear from 2028.
How Will the New 30% Minimum Tax Work?
From 1 July 2028:
Discretionary trust income will be subject to a 30% minimum tax.
The tax will be paid by the trustee.
Beneficiaries will still report trust distributions in their tax returns.
Individual beneficiaries will receive a non-refundable tax credit for tax already paid by the trustee.
Corporate beneficiaries will not receive these credits.
This creates a tax floor that cannot be reduced simply by distributing income to family members with little or no other income.
Example
Imagine a family trust earns $100,000.
Under the current rules, that income might be distributed among several adult family members, potentially resulting in less than $30,000 of total tax.
Under the new rules, the trust will face a minimum tax outcome equivalent to 30% regardless of how the income is distributed.
What Does This Mean for Families?
For families using discretionary trusts, the impact depends on why the trust exists.
If the trust was established primarily for:
Asset protection
Estate planning
Managing family wealth
Holding long-term investments
the structure may still have value.
If the trust was established primarily to distribute income to family members on lower tax rates, the benefits may be much smaller after 2028.
Estate Planning Still Matters
One important point often missed in discussions about these reforms is that not every trust is affected.
Several trust structures remain excluded from the new minimum tax.
These include:
Fixed testamentary trusts
Deceased estates
Special disability trusts
Certain legacy testamentary trust arrangements
This means trusts can still play an important role in passing wealth between generations and protecting vulnerable beneficiaries.
What Does This Mean for Business Owners?
Business owners operating through discretionary trusts may need to revisit their current structure. The key question becomes: Is the trust still the most effective vehicle for running the business? In some situations, a company structure may become more attractive.
Comparing Trusts and Companies
After the changes:
| Structure | Tax Position |
|---|---|
| Discretionary Trust | 30% minimum tax from July 2028 |
| Small Company (turnover under $10 million) | 25% company tax rate |
| Fixed Trust | Not subject to the new 30% minimum tax | Superannuation | Not affected by the trust tax changes |
For some business owners, a company may offer:
A lower tax rate
Easier profit retention
Simpler capital management
Greater flexibility for future growth
That does not mean every trust should become a company. Asset protection, succession planning, ownership arrangements, and family circumstances all need to be considered.
Exemption for Farming Businesses
Primary production income is excluded from the new minimum tax rules. This is a major concession for farming families and agricultural businesses.
For those operating genuine primary production enterprises through trusts, the impact of the reforms may be far less dramatic than it is for other industries.
The Three-Year Restructure Window
Recognising that many people may want to change structures, the Government is providing a dedicated restructuring period.
From 1 July 2027 until 30 June 2030, eligible taxpayers will be able to access rollover relief when moving assets out of discretionary trusts.
Normally, transferring assets can trigger:
Capital Gains Tax (CGT)
Income tax consequences
Stamp duty considerations
The proposed rollover relief is designed to reduce these barriers and make restructuring easier.
This creates a valuable planning window for families and business owners who want to explore alternatives before the new trust tax rules begin.
Questions Worth Asking Now
If you currently use a discretionary trust, it may be worth reviewing:
Why was the trust established in the first place?
Is asset protection still the main objective?
How much of the benefit comes from income splitting?
Would a company structure be more suitable?
Would a fixed trust better align with your long-term plans?
How would the new rules affect future generations?
The answers will differ from one family or business to another.
The Role of Trusts Is Changing
The 2026 Budget does not eliminate discretionary trusts. What it does is reduce the tax advantages that have traditionally made them attractive for some families and business owners.
Going forward, trusts are likely to be used more for:
Asset protection
Succession planning
Family governance
Investment ownership
and less for reducing tax through income splitting.
For some people, the current structure may still be appropriate. For others, the upcoming rollover relief window may provide an opportunity to move into a structure that better suits their future goals.
Next Steps
If you have a family trust, investment trust, or business operating through a discretionary trust, now is a good time to review how the proposed changes could affect your plans.
Practical steps may include:
Reviewing trust distributions and tax outcomes
Assessing whether income splitting remains effective
Comparing trust and company structures
Considering succession and asset protection objectives
Preparing for the rollover relief period beginning in July 2027
Final Thoughts
The trust tax changes proposed in the 2026 Budget could affect family wealth strategies, business structures, investment portfolios, and succession plans.
James Hayes Financial Planner can help you assess how the new rules may apply to your circumstances, review existing structures, and explore whether alternative arrangements may be worth considering before the changes take effect.
Seeking advice early can provide more time, more flexibility, and a clearer understanding of the options available before the 2027 and 2028 implementation dates arrive. Book a free 15-minute introductory call.
Disclaimer
The information in this article is provided as a general guide only. It does not constitute personal financial advice and should not be relied upon as such. Readers should seek advice from a licensed financial adviser before making any financial decisions. James Hayes and his associated entities accept no responsibility or liability for any loss, damage, or action taken in reliance on the information contained in this article. Links to third-party websites are provided for reference purposes only. We do not endorse or guarantee the accuracy of their content.