If your business or investments are held through a discretionary trust, proposed changes to the way trusts are taxed could have significant implications from 1 July 2028.
The Federal Government announced in the 2026-27 Budget that it intends to introduce a minimum tax rate of 30% on the taxable income of discretionary trusts. Since then, Treasury has released a consultation paper providing more detail on how the proposed rules could operate.
While there is still some way to go before the final rules are known, business owners with discretionary trusts should start considering what the changes could mean for them.
What is changing?
Under the current proposal, a trustee-level tax of 30% would apply to the taxable income of discretionary trusts from 1 July 2028. Eligible individual beneficiaries would generally be entitled to a non-refundable tax credit for tax paid by the trustee.
The minimum tax will not apply to a number of trusts and types of income, including:
- Fixed and widely held trusts
- Complying superannuation funds
- Special disability trusts
- Deceased estates and charitable trusts
- Primary production income
- Certain income relating to vulnerable minors
- Income from genuine discretionary testamentary trusts, subject to eligibility requirements.
The exact scope of these exclusions will depend on the final design of the rules.
Does this mean discretionary trusts are no longer worthwhile?
Not necessarily. Tax is only one reason discretionary trusts are used. Depending on your circumstances, they can provide benefits including flexibility, asset protection and succession planning.
The proposed changes don’t prevent businesses or families from using discretionary trusts. However, they could change the tax outcomes and therefore the relative advantages of different business and investment structures.
For some, the existing structure may continue to make sense. For others, it may be worth considering alternatives.
Should you restructure now?
The Government has proposed expanded rollover relief for three years from 1 July 2027 for small businesses and others that choose to restructure out of a discretionary trust into another entity type, such as a company or fixed trust.
That doesn’t mean everyone with a discretionary trust should restructure.
Moving assets or a business from one structure to another can have significant tax, asset protection, succession and commercial implications. There may also be costs and other consequences that need to be considered.
Importantly, the proposed trust tax rules are still being developed. Treasury’s consultation on their implementation closed on 31 July 2026, with issues including rollover relief, franking credits and interactions with corporate beneficiaries still being considered.
Making an irreversible change before the final rules are known may therefore be premature.
What should you be doing now?
While 1 July 2028 may seem some time away, now is a good opportunity to review your current structure rather than waiting until the new rules are approaching.
Some of the questions worth considering include:
- Why was your discretionary trust established and does it still serve that purpose?
- How is income currently distributed and how could the proposed minimum tax affect those distributions?
- Does your trust distribute income to a corporate beneficiary and how could the proposed rules affect that strategy?
- What assets or businesses does the trust hold?
- Would another structure potentially be more appropriate under the proposed rules?
- How do your longer-term plans for the business, including growth, succession or an eventual sale, affect the decision?
The important thing is not to make decisions based solely on the headline 30% rate. Instead, understand how the proposed changes could affect your particular circumstances and consider your options once there is greater certainty around the final legislation.
If you operate through a discretionary trust and would like to understand what the proposed changes could mean for you, please contact your Accru adviser.
