Family trusts work because the trustee can direct income each year to the family members who will pay the least tax on it. The Government’s proposed 30% minimum tax on discretionary trusts is aimed squarely at that. It is scheduled to start on 1 July 2028.
This one is not yet law. It was announced in the 2026–27 Budget, a Treasury consultation paper followed in July 2026, and exposure draft legislation was released on 3 September 2026 with comments closing on 18 September. What follows reflects that draft and may change before it reaches Parliament.
The family trust minimum tax at a glance
- The trustee pays a minimum 30% tax on the trust’s net income from the 2028–29 income year
- Individual beneficiaries receive a non-refundable tax offset for the tax the trustee has paid
- Corporate beneficiaries receive no offset, so income sent to a bucket company is taxed at 55% or more
- Fixed trusts, deceased estates, super funds and special disability trusts are excluded, as is primary production income
- Rollover relief for restructuring out of a discretionary trust is proposed from 1 July 2027 to 30 June 2030
- A one-off election to lock in fixed shares is available in 2028–29 only
How the 30% minimum tax works
The trustee pays tax at 30% on the trust’s net income, working as a top-up where the tax otherwise payable is lower. Beneficiaries still include their share of trust income in their own returns, and claim an offset equal to 30% of that share.
The offset is non-refundable. If the beneficiary’s own tax on the distribution is less than 30%, the excess is lost. That is the whole design.
Here is $40,000 of trust income distributed to three different beneficiaries:
| Beneficiary | Tax today | Tax under the minimum tax | Extra tax |
|---|---|---|---|
| Adult child at university with no other income | About $3,000 | $12,000 | About $9,000 |
| Spouse earning $60,000 | $12,000 | $12,000 | Nil |
| Individual on the top marginal rate | $18,000 | $18,000 | Nil |
These figures are simplified. They use the 2027–28 tax rates and ignore the Medicare levy and offsets. The pattern is what matters: the minimum tax does nothing to distributions made to people already paying 30% or more. It removes the benefit of distributing to low-income adults, such as a non-working spouse, adult children or retired parents.
What happens to bucket companies
A corporate beneficiary gets no offset for the trustee’s tax. On $100,000 distributed to a company, the trustee pays $30,000 and the company then pays $25,000 at the base rate entity rate, or $30,000 at the full rate. That is 55% to 60% before a dividend is ever paid to shareholders.
Under the draft, distributing to a bucket company to cap tax at the company rate stops working from 1 July 2028. If your group has years of unpaid entitlements or loans between a trust and its corporate beneficiary, that history still has to be managed. Our article on Division 7A pitfalls covers the loan side.
Franking credits
Under the draft, franking credits on dividends received by the trust are applied against the trustee’s minimum tax, with any excess refundable to the trustee. They no longer flow through to beneficiaries. For a trust that holds a share portfolio, this changes who ends up with the benefit of the credits.
What is excluded from the minimum tax
Trusts that are outside the regime in the draft:
- Fixed trusts, including unit trusts with no material discretionary elements
- Deceased estates and genuine testamentary trusts
- Complying super funds, including SMSFs
- Special disability trusts
- Managed investment trusts and other widely held trusts
- Charitable trusts
Income that is excluded even where the trust is caught:
- Primary production income
- Income of vulnerable minors
- Income distributed to charities and other tax-exempt entities
- Income subject to non-resident withholding tax
A family trust that runs a farm and also holds investments would be exposed on the investment income only.
The two ways out in the draft law
Rollover relief from 1 July 2027
For three years, from 1 July 2027 to 30 June 2030, a discretionary trust could transfer its assets to a company, a fixed trust, an individual or a partnership without triggering income tax or CGT. The conditions are tight. All of the trust’s required assets must go to a single transferee, the same family must own the new structure, and the new structure cannot have material discretionary features for four years. The relief does not cover stamp duty or GST. For a trust that holds real property, duty alone can make the restructure uneconomic.
The fixed share election
A trust in existence at 1 July 2028 could elect, in the 2028–29 income year only, to nominate beneficiaries and fixed percentage shares of income and capital adding to 100%. The election takes the trust outside the minimum tax, but it is permanent. The shares can only change on a death or a relationship breakdown, and if the trustee departs from them the election is revoked and the trustee is taxed at the top rate.
A trust cannot use both options.
What family trust owners should do now
- Do not restructure yet. The law is still draft, and the rollover window does not open until 1 July 2027. Restructuring early triggers CGT and duty with no relief.
- Map the last three years of distributions: who received what, and at what tax rate.
- Model 2028–29 on your current distribution pattern to see what the minimum tax would cost.
- Read the trust deed. Whether you can make a fixed share election, or qualify as a fixed trust, depends on it.
- List what the trust owns. Real property makes a rollover expensive, and a business with goodwill raises small business CGT questions.
- Plan 2026–27 and 2027–28 carefully. The existing rules apply for those two years, and section 100A still applies to distributions where someone other than the beneficiary gets the benefit.
Common questions about the 30% trust tax
Is the family trust dead?
No. Asset protection, succession planning and the ability to choose between beneficiaries who already pay 30% or more all remain. What goes is the tax saving from low-rate beneficiaries. Our article on asset protection for small business owners explains what trusts still do well.
Does the minimum tax apply to my SMSF?
No. Complying super funds are excluded.
Does it apply to unit trusts?
A unit trust with genuinely fixed entitlements is excluded. A hybrid trust, or a unit trust with discretionary features in the deed, may be caught. The deed needs to be reviewed.
When will the trust minimum tax become law?
A Bill has not yet been introduced. The proposed start date remains 1 July 2028, and trust capital gains are separately affected by the CGT changes from 1 July 2027.
Need a hand with this?
If your family group distributes through a discretionary trust, the right first step is modelling, not restructuring. We can map your distributions, quantify the cost of the minimum tax on your numbers and compare the rollover and election options once the legislation is settled. We are Chartered Accountants and registered tax agents in Cairnlea, in Melbourne’s west.
Related reading
- CGT discount ends 1 July 2027: indexation and the 30% minimum tax
- Division 7A pitfalls: taking money out of your own company
- Asset protection for small business owners: what works and what doesn’t
- The 30 June tax planning checklist
- Our full range of services
Sources
This article is general information only and does not take your personal circumstances into account. It reflects the law and announced measures as at October 2026. Measures described as draft or proposed may change before they are enacted. Speak to us before acting on anything you read here.
